DIVISIONAL COURT FILE NO.: 301/12
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
BETWEEN:
2190322 Ontario Ltd.
Plaintiff (Respondent)
– and –
Ajilon Consulting, a division of Ajilon Canada Inc.
Defendant (Appellant)
Robert J. Drake, for the Plaintiff (Respondent)
John-Paul Alexandrowicz, for the Defendant (Appellant)
HEARD: December 17, 2013
Introduction
12190322 Ontario Ltd. (“2190322”) sued Ajilon Consulting (“Ajilon”) for damages in the amount of $25,000 for negligent misrepresentation. The matter proceeded to trial before Deputy Judge M.O. Mungovan of the Small Claims Court. In a decision dated April 20, 2012, the trial judge found in favour of the plaintiff in the amount of $25,000, and ordered pre-judgment and post-judgment interest and costs in the amount of $4,398.16. Ajilon appeals the judgment and asks that the decision be set aside and the action be dismissed with costs.
2The case was tried along with another claim against Ajilon by a plaintiff whose factual circumstances and legal issues were similar. In an order made by this court, this appeal and the appeal involving the other plaintiff were ordered to be heard together.
Factual Background
3Ajilon is a federally incorporated company which provides information technology (“IT”) consulting services to a number of clients, one of which is Loblaw Companies Ltd. (“Loblaw”). Loblaw began using Ajilon’s services in 2007, often on a project basis. The Business Analyst staffing group at Loblaw retained Ajilon in 2009 to provide consultants on a contract basis, as well as permanent staffing. Ajilon’s practice was to locate consultants to provide the services, require them to incorporate, and have the consultant corporation sign an agreement as an independent contractor with Ajilon.
4In January 2010, Mark Healey was hired as a Business Development Manager at Ajilon and was assigned the Loblaw account. Late in January, Mr. Healey was contacted by Angela Walker, a senior manager at Loblaw, to locate five additional Senior Business Analysts (“BA”) for her team. Mr. Healey’s group made contact with potential consultants and arranged for them to meet with Jimmy Kahn, a senior manager at Loblaw.
5Wanda Langley (“Langley”) is the officer and principal of the corporate plaintiff 2190322. On January 18, 2010, she emailed Jordan Scharfe, Resource Manager for Mr. Healey’s team at Ajilon, expressing interest in the position. At the time she was also pursuing other job opportunities. Ms. Langley met with Mr. Kahn at Loblaw on February 3 and after the meeting Mr. Kahn emailed Mr. Healey stating that they wished to engage Ms. Langley and several other consultants. Ms. Walker of Loblaw was copied on the email. The email also mentioned a start date of February 10, 2010. Shortly after Mr. Kahn’s email on February 3, Mr. Scharfe emailed Ms. Langley to inform her of Loblaw’s offer. He indicated the contract would be for six months of work, would start on February 10, 2010, and would pay her at the rate of $55 per hour. The email did not contain details regarding the amount of work involved. Ms. Langley discussed the salary and mentioned that she had another offer from B2B Trust. After negotiating the rate up to $58 per hour she accepted the engagement from Ajilon.
6Before she had received this offer from Loblaw, Ms. Langley had received an offer on February 2, 2010 for a senior Business Analyst position on a three month contract with B2B Trust. This offer was conditional on the completion of background checks including criminal, credit and reference checks, which she was told would take approximately three to five days to complete. On February 4, Ms. Langley emailed B2B Trust to decline the position. At trial, she said that she had not yet started the background check process with Loblaw by February 4, but felt that the opportunity at Loblaw was a better one as it was closer to home and she was a single mother.
7Ms. Langley’s interactions were all with Ajilon except that she and the other consultants were asked to meet Ivana Spadafora, an IT recruiter with the Human Resources department at Loblaw on February 4, 2010 to provide information so that the standard background checks could be done. During the meeting, Ms. Spadafora indicated to the consultants that they were scheduled to start on February 10, 2010.
8On February 5, 2010, Ms. Langley received an email from Mr. Scharfe asking her to sign Ajilon’s standard independent contractor agreement (the “agreement”) and provide a copy of the articles of incorporation for her company by November 11 at 12:00 p.m. Everything was complete except that Loblaw still had to provide a signature on the statement of work. Ms. Langley was not told at the time that Loblaw had not signed off on the arrangement.
9Ms. Langley read the agreement and signed it on February 5, 2010. The preamble said that Ajilon wished to engage the contractor as an independent contractor to provide client services to Loblaw. The agreement describes itself as a contract for services with an independent contractor, not an employment agreement, and it specifies that background and security checks must be completed to the satisfaction of Ajilon and the client. The contract was for an initial term of six months commencing on February 10, 2010, ending on August 13, 2010. It specified that Ms. Langley would only be paid for hours actually worked and approved according to proper invoices. It was silent on the amount of work that Ms. Langley would receive, leaving this to the client’s discretion. A termination clause provided for termination for any reason upon the provision of same day written notice. It also contained an entire agreement clause.
10On February 9, 2010, one day before the consultants were to start work, Mr. Healey received an email from Ms. Spadafora, an IT recruiter with the Human Resources department at Loblaw, advising that they were pushing Ms. Langley’s start date back by one week to February 17. On February 16, Mr. Healey emailed Ms. Spadafora reminding her that the five consultants were starting in her group the next day and that her signature was still needed on the agreements. Later that day Mr. Healey received an email from Ms. Walker indicating that “due to some recent possible changes” within her group, they were still assessing the need for additional BAs and that Loblaw was postponing Ms. Langley’s and the other consultants’ start date again. This time, no new date was given. Mr. Healey responded that he believed there were five exceptions to the moratorium on engagements, one being Ms. Langley, and he also noted that she and the other consultants were already signed up to contracts. However, Mr. Healey only received an email which reiterated that there was some uncertainty. The correspondence continued over the week.
11During this period, Ms. Langley had been in touch with Mr. Healey who had written the following on February 16:
Unfortunately, I have just received this e-mail [from Ms. Walker of Loblaw] in the last 30 minutes, and they are not fully ready for you tomorrow as a VP sign off has not been tendered for your contracts. I have received word that they have been approved and will be signed off as soon as possible, but the VPs have been sequestered and unfortunately that has slowed things down. I know this is not the news you are looking for, and I apologize to be the one delivering it. I also apologize for the frustration you must feel, but I know the VP has promised to sign off officially on your contracts ASAP, this week, and we will get you on site at Loblaws this week.
12In fact so such promise had been made by Loblaw. Ms. Langley responded that she was very nervous as she had turned down another offer to work at Loblaw. Mr. Healey responded twice, saying first that he hoped to have the sign off by 5:00 p.m. that day but would push for a start date that week and second, that she should not be nervous. Then, the following day in a response to an inquiry from Ms. Langley, Mr. Healey replied that the VP would sign off the next day and he would confirm her start date.
13On February 23, 2010, Mr. Healey emailed the consultants including Ms. Langley and advised that they should pursue other opportunities while he tried to get a firm commitment from Loblaw regarding start dates. Ms. Langley responded that she had been put in a bad position and requested compensation. On March 5, 2010, Ms. Langley sent Ajilon an invoice for the month of February and later that day Ajilon sent letters to all the consultants, including Ms. Langley, terminating their agreements. The reason given was that Loblaw no longer required their services. No services had ever been provided. 2190322 commenced an action against Ajilon for damages for negligent misrepresentation.
Decision of the court below
14Deputy Judge Mungovan heard the trial over two days. In his decision, he outlined the elements of the tort of negligent misrepresentation as set out in the leading authority of Queen v. Cognos, 1993 146 (SCC), [1993] 1 S.C.R. 87. Having heard the evidence of Ms. Langley and reviewed the emails between Ajilon and Ms. Langley, he found that Ms. Langley was relying on what the representatives of Ajilon were saying to her “about a job in Loblaws.” He applied the test in Hercules Managements Ltd. v. Ernst & Young, 1997 345 (SCC), [1997] 2 S.C.R. 165, and found that the indicia of “reasonable reliance” had been proven: Ajilon had a direct financial interest in the transaction as it stood to gain from a successful placement of Ms. Langley in Loblaw; its employees possessed special skills, judgment or knowledge when dealing with Loblaw’s staffing needs; its advice on Loblaw’s offer was given to Ms. Langley in the course of Ajilon’s business, as it was done in the context of work; and the information was requested by Ms. Langley. Thus, he found that a duty of care existed between Ajilon and Ms. Langley’s corporation. The trial judge then held that Ms. Langley placed foreseeable reasonable and justifiable reliance on representations made by Ajilon. He also found that the duty extended to Ms. Langley’s corporation as Ajilon had dealt both with her and her corporation throughout.
15The trial judge found that the representation made to 2190322 was misleading as it portrayed to Ms. Langley that there was a job for her at Loblaw when there was no firm commitment from that company that they would “employ” Ms. Langley as a Senior Business Analyst. He noted that on February 16, 2010, Loblaw had communicated second thoughts about increasing its existing complement of business analysts.
16The trial judge went on to find that Ajilon, through Jordan Scharfe, acted negligently in making this representation. He held that this conduct had to be considered against an objective standard with reference to a reasonable person. He held that Ajilon had breached the standard of care by “representing in no uncertain terms that [Ms. Langley] had secured a place at Loblaws as a Senior Business Analyst when in fact that was far from the case.” He concluded that Mr. Scharfe should have cautioned his candidate and that there was no certainty until an official at Loblaw had “signed off on a candidate’s hire.”
17Deputy Judge Mungovan held that Ms. Langley relied upon the representations in advising Mr. Davidson of B2B Trust that she had “accepted a position with another company.” He held that her reliance “was not foolhardy but reasonable in the circumstances” in that she had received three emails on February 3, 2010, in which Mr. Scharfe congratulated for receiving an offer from Loblaw and laid out the key details of the offer.
18On the issue of damages, he found that Ms. Langley had rejected the offer at B2B Trust where she was to earn $65 per hour for 35 hours of work per week over a three month period with a possibility of renewal. He calculated that the missed opportunity for 2190322 to work for B2B Trust was the value of the contract equaling $27,300. He also found that Ajilon terminated its agreement with Ms. Langley and her company effective March 5, 2010, and that Ms. Langley then found a job with The CUMIS Group Limited to begin on May 10, 2010. Accordingly, Ms. Langley had made an effort to mitigate her company’s damages.
19Finally, on the question of whether the terms of the agreement prevented Ms. Langley from bringing the action, the Deputy Judge found that the negligent misrepresentation was made by Jordan Scharfe, acting on behalf of Ajilon, in stating that there was a job for Ms. Langley as a Senior Business Analyst at Loblaw. The trial judge considered the “entire agreement” clause in the agreement and held that, while it did not specifically use the word “representation”, any representations would be covered by the category of “understandings” which was mentioned in the clause. However, he went on to hold that the clause would only be enforceable where the parties to the contract are “sophisticated commercial parties” and that Ms. Langley was not a sophisticated commercial party and was not knowledgeable about technical legal aspects of contracts. Moreover, he held it was unenforceable because it was not specifically brought to her attention by Ajilon prior to signing the contract.
Positions of the parties
20The appellant argues that the trial judge erred by mischaracterizing the evidence and finding that Ms. Langley had a “job” – Ajilon did not have a firm commitment from Loblaw that they would “employ” Ms. Langley. In fact, Ms. Langley was offered a position through her numbered company 2190322 as an information technology consultant pursuant to an independent contractor agreement, not as an employee. By mischaracterizing the nature of the offer, the trial judge mischaracterized the representation that was made to Ms. Langley.
21Ajilon argues that the trial judge further erred by failing to consider the evidence presented by Ajilon regarding the representation made which showed, it submits, that the statements were neither negligent, nor misrepresentations as at the time it was made the offer made was true and accurate. In fact, Ms. Langley was asked to meet Ms. Spadafora on February 4, 2010, to provide the information for backgrounds checks. Even when the start date was pushed back, Loblaw still intended to proceed and the only pending step was a signature on the contracts. It was only on February 16, 2010, after Mr. Healey contacted Ms. Walker, that Mr. Healey became aware that Loblaw was not sure that it was going ahead to hire the five consultants. While there was evidence regarding communications between representatives of Loblaw and Ajilon instructing Ajilon to make the offer to Ms. Langley, the relationship between Loblaw and Ajilon and the terms of the consulting arrangements were inherently uncertain in nature.
22The appellant also argues that the trial judge erred in law and made incorrect findings of fact in finding that the entire agreement clause in the agreement did not bar the action for negligent misrepresentation. It submits that the trial judge erred in law and made incorrect findings of fact in finding that Ms. Langley was not a “sophisticated commercial entity/party.”
23The appellant takes the position that, where credibility of a witness was not in issue, it is open to an appellate court to review findings of fact by a trial judge if they were based on the failure to consider relevant evidence or a misapprehension of the evidence: see Schreiber Brothers Ltd. v. Currie Products Ltd., 1980 11 (SCC), [1980] 2 S.C.R. 78, para. 10. Where the trier has made unreasonable findings of fact based on a misapprehension of the evidence and where the misapprehension is material to significant findings of fact, a new trial should be ordered: see Apelowicz Management Inc. v. Griffiths, 2010 ONSC 1410, at para. 23.
24Ajilon submits that the proposition that an appellate court should not lightly interfere with the findings of fact by a trial judge is subject to the trial judge correctly characterizing the evidence: see Remo Valente Real Estate Ltd. v. Beauchamp, [1996] O.J. No. 2040 (Sup. Ct.), at para. 1. In summary, on the evidentiary issues Ajilon takes the position that the trial judge failed to consider the evidence called by Ajilon showing that the representation did not constitute a negligent misrepresentation and erred in mischaracterizing the evidence concerning the nature of the opportunity that was offered to Ms. Langley.
25The respondent argues that the trial judge properly weighed the evidence and applied the law in concluding that the appellant had made a negligent misrepresentation about the nature and existence of the Senior Business Analyst position at Loblaw. It submits that Ms. Langley was congratulated about an offer from Loblaw and was never told that the offer was subject to a final approval or was conditional in any way. In fact, at the time of Mr. Scharfe’s emails on February 3, 2010, the paperwork for final approval had not even been submitted to Loblaw. The agreement was sent to she signed with Ajilon provided for a start date of February 10, 2010. When that date arrived but the position had not materialized, she was told the start date was delayed one week to February 17. On February 16, she was told that she would not start the following day.
26The respondent was never cautioned that the position had not been approved and may not ever be approved. On the contrary, Mr. Healey told Ms. Langley in response to her concerned email of February 16, “don’t be nervous. The VP has approved—we are just waiting for the paperwork to come out the far side.” The respondent says that the approach by the appellant was to assure Ms. Langley that the work at Loblaw had been offered and that the start date was imminent. That there were problems with Loblaw’s approval was not communicated to Ms. Langley until February 19, 2010 and even then, Mr. Healey told her that matters still remained undecided at that point. Ms. Langley did not get any clear response until she submitted an invoice for the month of February on March 5, 2010, after which Ajilon promptly terminated the agreement. The respondent takes the position that there never was a position ready for her and that Loblaw never had made an “offer” capable of acceptance.
The standard of review
27The appellant submits that the applicable standard of review on questions of law is correctness. For questions of fact, the standard is palpable and overriding error. A palpable and overriding error is defined as “clear to the mind or plain to see”: see Housen v. Nikolaisen, 2002 SCC 33, [2002] S.C.R. 235, at paras. 5, 8, 10, 26.
28The respondent submits that the standard of palpable and overriding error applies equally whether the disputed determination relates to credibility concerning “primary” facts, “inferred” facts or to global conclusions based on assessment of the evidence as a whole: see L.(H.) v. Canada (Attorney General), 2005 SCC 25, [2005] 1 S.C.R. 401, at paras. 53-54. It further argues that it is for the trial judge to weigh the evidence and deference should be given. An appellate court should only intervene if the finding is “clearly wrong”, “unreasonable” or “unsupported by the evidence”.
29The trial judge’s application of the test of for negligent misrepresentation raises questions of mixed fact and law reviewable on the standard of palpable and overriding error. Whether the entire agreement clause precludes liability for negligent misrepresentation is a question of law reviewable on a standard of correctness.
The Test for Negligent Misrepresentation
30The Supreme Court held in Queen v. Cognos, at p. 110, that for a claim to succeed based on the tort of negligent misrepresentation, five elements must be present. They are as follows:
(1) there must be a duty of care based on a “special relationship” between the representor and the representee; (2) the representation in question must be untrue, inaccurate or misleading; (3) the representor must have acted negligently in making said representation; (4) the representee must have relied, in a reasonable manner, on said negligent misrepresentation; and (5) the reliance must have been detrimental to the representee in the sense that damages resulted.
Analysis
(1) Did Ajilon owe a duty of care to Ms. Langley’s company?
31The appellant does not submit that the trial judge erred in finding a duty of care based on a special relationship between the appellant and the respondent. As the trial judge noted, the agreement was between Ajilon, the recruiting agency, and the consultant although the consultant was to provide the services for Loblaw and work at one of Loblaw’s premises. The trial judge noted that this requirement for negligent misrepresentation has become “a duty based generally on ‘foreseeable reasonable reliance’.” Based on the evidence, the trial judge could easily have concluded that there was foreseeable reasonable reliance by the respondents on Ajilon’s representation. Ajilon’s representative, Mark Healey, showed he understood this when he told Loblaw that “there may be issues because we already have signed [the consultants] up to contracts”, and that he did not want to lose them to other opportunities. Only later did he inform the consultants, including Ms. Langley, that they should pursue other opportunities.
(2) Was the representation untrue, inaccurate or misleading?
32This element of negligent misrepresentation requires that the representation be untrue, inaccurate or misleading at the time that it was made. The trial judge held that the representation by Mr. Scharfe was “misleading” because “he did not have a firm commitment from that company that they would ‘employ’ Ms. Langley as a Senior Business Analyst.” Mr. Scharfe had told Ms. Langley that Loblaw had extended an offer to retain her to provide consulting services on an independent contractor basis on February 3, 2010. This was based upon the email from Mr. Kahn to Mr. Healey instructing him to extend her an offer. Mr. Scharfe wrote to Ms. Langley saying, “Loblaw has decided to make you an offer” and set out the terms of the offer. Mr. Sharfe sent her three emails congratulating her on the offer and gave her the human resources contact at Loblaw for the criminal and job reference checks. What Ms. Langley was not told until much later was that the position was waiting on a final approval from Loblaw. In an email dated February 16, Ms. Walker advised Mr. Healey that Loblaw was “having second thoughts about increasing its existing complement of business analysts” and yet Ms. Langley was not advised to pursue other opportunities until February 23.
33The appellant submits that the court must consider the inherently uncertain nature of consulting contracts and that the nature of the industry and the type of contract mean that an offer is never a certainty. Ajilon submits that there was no job, the opportunity was not secure and that there was no real representation as Ajilon was simply passing on the information that Loblaw had given it. The respondent argues that Ajilon was not led astray by Loblaw, as it knew sign-off was required and yet insisted on obtaining a commitment from the potential analysts that drew them away from other opportunities without letting them know the true nature of the situation.
34The appellant makes much of the fact that Ms. Langley was an independent contractor, not a traditional employee, and consequently the trial judge misapprehended the position when he described it as a “job” or “employment” in his reasons. It submits that independent contractor arrangements are flexible, not secure and there are risks that the business opportunity may not materialize or that the opportunity may change. Ajilon argues that the trial judge mischaracterized the opportunity as a “job” or “employment” when, in fact, it was an independent contractor arrangement which had no certainty. The appellant submits that the trial judge erred in finding that the representation was misleading because Ajilon did not have a firm commitment from Loblaw that they would “employ” Ms. Langley at the time they made the offer – Loblaw was never to be Ms. Langley’s “employer”.
35Regardless of the nature of the industry and the potential risks inherent in this type of arrangement, Ajilon misrepresented an offer of work to Ms. Langley and gave her all the details of it, save for one—that the opportunity still required official approval. In the context of the communications between the appellant and the respondent, the trial judge found that the representations were untrue, inaccurate and misleading and I agree with this finding.
(3) Did the representor act negligently in making the representation?
36The failure to divulge relevant information is important in determining whether a misrepresentation was negligently made. Where the representor does not know or could not have known pertinent information when the misrepresentation was made, the misrepresentation would not be negligent: see Lesage v. Canadian Forest Products Ltd., 2009 BCSC 1427, at paras. 87-89, aff’d, 2011 BCCA 259.
37Here, the trial judge found that Mr. Scharfe represented to Ms. Langley that she had secured a place as a Senior Business Analyst but failed to caution her that there was no certainty until Loblaw signed off. Ajilon argues that it is common in the context of the IT consulting industry for organizations to require flexibility and that needs are largely project-based, meaning that they can change or may fail to materialize altogether. The appellant argues that Ms. Langley should have been aware that an offer was not certain and, consequently, the appellant’s failure to state this was not negligent. The appellant says that at the time the offer was made, Mr. Healey did not know that subsequent internal changes at Loblaw might impact any planned IT projects. Therefore, Ajilon did not act negligently in declining to warn Ms. Langley that the contract or statement of work had not yet been signed off on.
38Ajilon also submits that it was common to engage consultants without official paperwork and since the company had done this with eight consultants in the same group and no issues had resulted, it was reasonable to tell Ms. Langley this without expressly saying that the contract had not yet been signed.
39The respondents claim Ajilon should have known and did know that the contract still needed final approval, and that this meant the prospect of work for Ms. Langley was not yet certain. Ajilon’s failure to disclose this made its misrepresentation regarding the certainty of the offer negligent.
40These submissions were all put to the trial judge. He concluded that, in making representations to the respondents, Ajilon breached the standard of care by representing that Ms. Langley had “secured a place at Loblaws as a Senior Business Analyst when in fact that was far from the case”. That conclusion was reasonable in the circumstances.
(4) Did the representee rely in a reasonable manner on the negligent misrepresentation?
41If it is doubtful that the misrepresentee would have acted any differently had the representation not been made, then this element will not be made out. The trial judge held that there was no doubt that Ms. Langley relied upon Mr. Scharfe’s representation that there was a job for her at Loblaw as she then told B2B Trust that she accepted a position elsewhere. He found her reliance was “not foolhardy but reasonable.” The trial judge referred to the fact that Mr. Scharfe sent Ms. Langley three emails congratulating her on the offer.
42The appellant argues that Ms. Langley preferred the position at Loblaw because it would improve her work/life balance and refused the B2B Trust offer before she had even met with Loblaw to sign the information for a background check. Ajilon submits that Ms. Langley was willing to take the risk of the engagement at Loblaw not materializing. Ajilon argues that she did not rely on Mr. Scharfe’s alleged representation and that it was unreasonable for her to believe the engagement was a certainty. Rather, they argue Ms. Langley was aware of the nature of the independent contractor arrangement. Again, the appellant argues that the mischaracterization of the opportunity as a “job” caused the trial judge to fail to consider the opportunity in an appropriate context.
43Counsel for the respondent points to the direct evidence that, had Ms. Langley been informed that the opportunity was not certain and had not been officially approved, she would have taken the other offer.
44The trial judge found that Ajilon intended for Ms. Langley to rely on its representations. It knew she had another offer and did not want her to accept it. Ajilon appealed to her by saying that this was a longer contract, that the company valued her (more than those it had already hired) and that this was a better offer than the B2B Trust offer because of the possibility for advancement and a raise at the end of the initial contract period. It intended that she rely on the representations made. In my view, the trial judge was able to conclude that it was negligent for Ajilon to make such statements and then not accept the responsibility for their intended effect—that Ms. Langley would turn down another offer for a position. Ms. Langley’s reliance was reasonable.
(5) Was the reliance detrimental to the representee in the sense that damages resulted?
45The trial judge found that Ms. Langley was entitled to damages for the missed opportunity to work for B2B Trust. Although she had not yet passed the background checks for B2B Trust, the respondents argue that these were formalities and the fact that no issues were raised with her checks by Loblaw indicates there would have been no issue with B2B Trust. Ajilon argues that Ms. Langley cannot prove damages.
46Ms. Langley testified that after she was not given the position at Loblaw, she began her job search again and eventually took a position with The CUMIS Group Limited as a Senior Business Analyst beginning May 10, 2010.
47The trial judge held that he was satisfied of Ms. Langley’s efforts to mitigate. He ordered that damages would be the value of the Loblaw contract less the value she gained through mitigating her damages. I find the trial judge did not err in making his conclusions on damages.
The entire agreement clause
48Clause 30 of the agreement signed by Ms. Langley on behalf of the plaintiff reads as follows:
This Agreement constitutes the entire agreement between the Parties pertaining to the consulting engagement set forth herein and supersedes all prior negotiations, understandings and agreements between the Parties, written or oral ….
49The appellant argues that the entire agreement clause specifically precludes reliance on representations and operates as a bar to negligent misrepresentation claims: see Corfax Benefits Systems Ltd. v. Fiducie Desjardins Inc. (1997), 1997 12195 (ON SC), 37 O.R. (3d) 50 (Gen. Div.), at p. 6; McNeely v. Herbal Magic Inc., 2011 ONSC 4237, at paras. 10 and 19; No. 2002 Taurus Ventures Ltd. v. Intrawest Corp., 2007 BCCA 228, at para. 59.
50The trial judge referred to the entire agreement clause and found that, while the word “representation” does not appear in the clause, the word “understandings” does. He was satisfied that the representation relied upon probably did fall into the category of an understanding and, in any event, to conclude otherwise would “constitute a distinction without a difference.” In my view the trial judge did not err in this conclusion.
51He then relied on the authority of McNeely for the proposition that an entire agreement clause is enforceable to preclude liability for a negligent misrepresentation where the parties to such a contract are “sophisticated commercial parties.” He held that Ms. Langley was not a sophisticated commercial party in the sense of understanding a contractual clause such as this. He noted that “only a lawyer” would understand the importance of an entire agreement clause in this context, and therefore the clause could not be enforced to preclude Ajilon’s liability for the negligent misrepresentation.
52The appellant argues that McNeely does not stand for the proposition that the parties must be “sophisticated commercial parties” for an entire agreement provision to be enforced. Rather, it should be enforced unless it can be said that the clause is unconscionable or unfair, or unreasonable. The trial judge failed to establish the legal doctrine for striking the entire agreement clause down.
53The appellant thus argues that the trial judge applied the incorrect legal test by requiring that the parties be sophisticated commercial entities/parties and by narrowly defining a sophisticated commercial entity/party as a lawyer. The appellant argues that the trial judge erred in finding that Ms. Langley was not a “sophisticated commercial party” when she had previous experience in the IT industry as an independent contractor.
54The respondent argues that if the word representation is not in the clause, it cannot cover liability for misrepresentations. However, there is no suggestion that the trial judge made an error of law in finding otherwise. The respondent also submits that there are two situations in which a judge might not enforce an entire agreement clause: where a party was not a sophisticated commercial party and where the representation went to the heart of the contract. The respondent submits that both of these concepts apply in the case at bar.
55The problem of determining whether an entire agreement clause can preclude liability for a negligent misrepresentation is one that lies on the shifting sands between tort and contract. An entire agreement clause is similar to but distinct from a general exculpatory, or exclusionary, clause. In general, “both types of clauses have the effect of excluding liabilities of various kinds and are capable of producing unjust results”: see John D. McCamus, The Law of Contracts, 2nd ed. (Toronto: Irwin Law Inc., 2012), at p. 372. More specifically, an exculpatory clause limits or excludes “liability for damages for breach of contract or for a tort connected to the contract”, while an entire agreement clause “seeks to exclude liability for statements other than those set out in the written contract and is sometimes referred to as an exclusion clause”: see Shelanu Inc. v. Print Three Franchising Corp. (2003), 2003 52151 (ON CA), 64 O.R. (3d) 533 (C.A.), at para. 31. Where the issue is the effect of an entire agreement clause on a party’s liability in tort for a negligent misrepresentation, there appears to be little practical difference between its effect and that of an exculpatory clause.
56The precise relationship between the two types of clauses may seem an arcane point but it has ramifications given the Supreme Court of Canada’s new approach to the application of exclusionary clauses in Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69. In Tercon, the province of British Columbia sought to preclude liability to a large construction contractor for a breach of a tendering contract by way of an exclusion clause found in that contract. Both parties were held to be “sophisticated” commercial parties: at paras. 73, 82. The court was unanimous that a new approach should be applied when a party “seeks to escape the effect of an exclusion clause or other contractual terms to which it had previously agreed”: at para. 121. Four members of the court dissented on the application of the new approach to the facts but the important aspect for this case is the approach itself.
57Under the former approach to exclusionary clauses, courts sometimes applied the doctrine of fundamental breach to hold an exclusionary clause unenforceable but this was undesirable as it often served to obscure the real grounds motivating judicial decision making. The new approach, described in Tercon at paras. 122-3, places the focus squarely on unconscionability and public policy:
The first issue, of course, is whether as a matter of interpretation the exclusion clause even applies to the circumstances established in evidence. This will depend on the Court’s assessment of the intention of the parties as expressed in the contract. If the exclusion clause does not apply, there is obviously no need to proceed further with this analysis. If the exclusion clause applies, the second issue is whether the exclusion clause was unconscionable at the time the contract was made, “as might arise from situations of unequal bargaining power between the parties” (Hunter, at p. 462). This second issue has to do with contract formation, not breach.
If the exclusion clause is held to be valid and applicable, the Court may undertake a third enquiry, namely whether the Court should nevertheless refuse to enforce the valid exclusion clause because of the existence of an overriding public policy, proof of which lies on the party seeking to avoid enforcement of the clause, that outweighs the very strong public interest in the enforcement of contracts.
58This new approach whereby a court may determine that a specific exculpatory term within an otherwise valid contract is unconscionable and, therefore, unenforceable has been called the “unconscionable term” doctrine by John D. McCamus in The Law of Contracts, Ch. 11, Section D(6). Among the innovations to contract law potentially implied by the adoption of this doctrine is the ability of a court to strike an unconscionable term from a contract while upholding the remainder of the agreement as valid. As this is not a remedy at issue in this particular case, its availability need not be dealt with here. What is necessary, however, is to determine whether the Tercon approach applies to entire agreement clauses as well as exculpatory clauses, a point on which the decision itself is silent. The appellant argues that if the entire agreement clause is unconscionable, unfair or unreasonable, then the entire agreement clause will be unenforceable. The authority for this would have to come from an application of the Tercon approach to entire agreement clauses.
59The approach adopted by the Supreme Court in Tercon combines two previous approaches to the construction of exclusionary causes laid out in Hunter Engineering Co. v. Syncrude Canada Ltd., 1989 129 (SCC), [1989] 1 S.C.R. 426, where the court split on the doctrine to apply if not applying fundamental breach. In Hunter, Dickson C.J.C. preferred the doctrine of unconscionability because it would allow courts to focus on whether factors such as inequality of bargaining power meant an exclusionary clause should be held unenforceable. This notion seems to have become step two in the Tercon analysis. Justice Wilson, held that the courts must reserve some discretion to hold an exclusionary clause unfair and unreasonable in light of events subsequent to the formation of the contract, since unconscionability is only concerned with inequality of bargaining power and circumstances as they stood at the time the contract was made. This notion seems to have become step three in the Tercon analysis.
60In Shelanu the Ontario Court of Appeal held, at paras. 31-32, that entire agreement clauses should be construed using the principles of construction normally applied to exclusionary clauses. This decision came after Hunter but before Tercon and, accordingly, it described the framework for the construction of exclusionary clauses according to the Hunter approach. The question that remains is whether the Tercon approach, which seems to combine both elements of the framework from Hunter, applies to an entire agreement clause such as the one in this case absent direct authority.
61There are reasons to believe that it should. M.H. Ogilvie, writing prior to Tercon, argues that “entire agreement clauses pose the same policy issues as exclusion clauses” and for this reason “they are not at all mysterious”: see M.H. Ogilvie, “Entire Agreement Clauses: Neither Riddle nor Enigma” (2008) 87 Can. Bar Rev. 625, at p. 632. Where a misrepresentation induces the agreement containing the entire agreement clause, these issues can include the sophistication of the parties and the provision of notice to unsophisticated parties. Ogilvie argues, at p. 626, that “whether the contract in question is induced by negligent or fraudulent misrepresentation, the outcome for entire agreement clauses should be the same as in the case of exclusion clauses generally …” where the clauses are generally enforced to preclude negligent misrepresentation in the context of negotiated contracts by sophisticated parties.
62Similarly, entire agreement clauses found in contracts induced by a negligent misrepresentation have generally been found to be unenforceable in the context of an unsophisticated party unless notice of the clause, or even notice of the clause’s intended effect, was brought home to the unsophisticated party during bargaining: see Beer v. Townsgate 1 Ltd. (1997), 1997 976 (ON CA), 152 D.L.R. (4th) 671 (Ont. C.A.), at para. 29; Zippy Print Enterprises Ltd. v. Pawliuk (1994), 1994 1756 (BC CA), 100 B.C.L.R. (2d) 55, at para. 45; Roberts v. Montex Development Corporation (1979), 1979 452 (BC SC), 100 D.L.R. (3d) 660 (B.C.S.C.).
63McCamus speculates that the so called unconscionable term doctrine from Tercon may have application to clauses traditionally subjected to “special notice” requirements. Of these, entire agreement clauses are the most likely. He writes about such clauses at p. 444:
Of these provisions, perhaps the most likely candidate for subjection to the new doctrine is the “entire agreement” clause. Known to be a “trap for the unwary,” entire agreement clauses have often been held to be enforceable only where Canadian courts are satisfied that the significance of the clause was brought home to the affected party … It should be noted, however, that the “special notice” doctrine is applied only sparingly to signed agreements on the assumption that the signature constitutes a binding assent to all the written terms. It may be, then, that the new doctrine will play an important role in striking down unfair terms in signed agreements where there is no realistic expectation that the written terms have been either read or, if read, understood by the signing party. In other words, the doctrine of unconscionable term may provide a common law device, long awaited by some, that can ameliorate the harsh impact of unfair terms in boilerplate or “adhesion” contracts, offered particularly in the context of consumer transactions on a take-it-or-leave-it basis.
64This passage illuminates the importance of the trial judge’s factual findings that Ajilon did not notify Ms. Langley of the entire agreement clause and that there could not have been any realistic expectation that she would have understood its importance without it being brought home to her. While the standard form contract as a whole was not strictly offered to Ms. Langley on a “take-it-or-leave-it basis” – after all, she did not sign it until negotiating a higher wage – the enforcement of this particular clause would nevertheless impose a “harsh impact” on Ms. Langley.
65In my view, the Tercon analysis should be used to determine whether the entire agreement clause precludes Ajilon’s liability for negligent misrepresentation. For this reason, I apply this approach.
66On step one, the trial judge concluded that the entire agreement clause did apply to negligent misrepresentations by use of the word “understandings” and I have already indicated I will not interfere with this finding.
67Step two of the approach is focused on whether the clause is unconscionable. Unconscionability requires the combination of inequality of bargaining power and the use of that inequality by the stronger party to obtain an improvident bargain: see Mundinger v. Mundinger (1968), 1968 250 (ON CA), [1969] 1 O.R. 606 (Ont. C.A.), at p. 610. In ABB Inc. v. Domtar Inc., 2007 SCC 50, [2007] 3 S.C.R. 461, the Supreme Court wrote, at para. 82, that “[u]nder the doctrine of unconscionability, a limitation of liability clause will be unenforceable where one party to the contract has abused its negotiating power to take undue advantage of the other.” Here, I consider the standard form nature of the agreement, the importance of the clause in light of Ajilon’s knowledge that they were keeping Ms. Langley in abeyance without a final approval of the position from Loblaw, and the lack of any notice regarding the clause. While the appellant argues that Ms. Langley was not unsophisticated because of her experience as a contractor in the IT industry, the key points are that the clause took on outsized importance given the uncertainty of the Loblaw position and that her access to information regarding this uncertainty was controlled by Ajilon. I conclude that Ajilon used its stronger informational position in the circumstances to obtain Ms. Langley’s supposed consent to an improvident clause.
68Step three of the analysis need not be undertaken given my finding on step two but, in any event, it may well be that the clause is also unenforceable on the public policy ground that recruitment companies should be prevented from leading potential recruits to believe they have secured work when they have not. This would not lead to an unduly restrictive operating environment for recruitment companies. Ajilon could have acknowledged to Ms. Langley and the other consultants the uncertainty in the situation with Loblaw and still tried to sell them on the merits of the positions, and their eventual placement which served Ajilon’s financial interests. The consultants may well have chosen to disregard other opportunities in favour of the potential but uncertain Loblaw positions.
69If I am wrong in applying the Tercon analysis to the entire agreement clause, the trial judge’s ruling on this issue must still be upheld under the traditional jurisprudence. As the foregoing discussion has shown, he did not err in determining that the sophistication of the parties and the lack of specific notice are relevant considerations in the case law on entire agreement clauses. While the trial judge went too far in stating that “only a lawyer” could have understood the importance of the clause – non-lawyers are certainly capable of understanding a clause like this if its significance is brought home to them – it is important to recall that Ajilon gave no notice of the clause whatsoever. This cannot be sufficient notice given Ms. Langley’s unsophisticated nature with respect to the clause.
Result
70In his reasons, the trial judge correctly set out the test for a claim founded in negligent misrepresentation. He reviewed the five factors and applied the law to the evidence before him. The entire agreement clause cannot preclude liability in these circumstances because it is unenforceable under the Tercon approach. Even if the Tercon approach does not apply, the trial judge did not err in determining the clause was unenforceable because Ms. Langley was an unsophisticated party and did not have notice of the clause. The trial judge made no reviewable error that would warrant intervention by this court. The appellant primarily asks this court to re-weigh the evidence and reconsider the matter, but that is not the function of this court.
71For these reasons, the appeal is dismissed. If the parties are unable to agree on costs, they may file written submissions according to the following timetable: the respondent by February 21, 2014 and the appellant by February 28, 2014.
Himel J.
Date: February 4, 2014
CITATION: 2190322 Ontario Ltd. v. Ajilon Consulting, 2014 ONSC 21
DIVISIONAL COURT FILE NO.: 301/12
DATE: 20140204
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
BETWEEN:
2190322 Ontario Ltd.
Plaintiff (Respondent)
– and –
Ajilon Consulting, a division of Ajilon Canada Inc.
Defendant (Appellant)
REASONS FOR JUDGMENT
Himel J.
Released: February 4, 2014