CITATION: 7326246 Canada Inc. and Kevin Gardiner v. Ajilon Consulting, 2014 ONSC 28
DIVISIONAL COURT FILE NO.: 433/12
DATE: 20140204
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
BETWEEN:
7326246 Canada Inc. and Kevin Gardiner Plaintiff (Respondent)
– and –
Ajilon Consulting, a division of Ajilon Canada Inc. Defendant (Appellant)
Robert J. Drake, for the Plaintiffs (Respondents)
John-Paul Alexandrowicz, for the Defendant (Appellant)
HEARD: December 17, 2013
HIMEL J.
Introduction
[1] 7326246 Canada Inc. (“7326246”) and Kevin Gardiner sued Ajilon Consulting (“Ajilon”) for damages for negligent misrepresentation. The matter proceeded to trial before Deputy Judge M.O. Mungovan of the Small Claims Court. On April 20, 2012, the trial judge found in favour of the plaintiff in the amount of $16,800 and costs in the amount of $2,573.14. Ajilon appeals the judgment and asks that the appeal be allowed and that the decision be set aside and the action be dismissed with costs.
[2] The 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
[3] Ajilon 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.
[4] In 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.
[5] Kevin Gardiner (“Gardiner”) is an officer and principal of the corporate plaintiff 7326246. He applied for a position to work at Loblaw as a Senior Business Analyst through Ajilon, interviewed successfully, and was offered the position through Ajilon. He signed an Incorporated Contractor Agreement with Ajilon (the “agreement”) which provided for an initial term of six months commencing on February 10, 2010 and ending on August 13, 2010.
[6] Prior to receiving the offer from Loblaw, Mr. Gardiner had started a four month contract with a company called ESP. However, he believed that the Loblaw opportunity was a better one and notified ESP on February 3, 2010 that he was accepting another position but could still offer some services to ESP. Mr. Gardiner sent a copy of his incorporation certificate to Ajilon, signed Ajilon’s standard independent contractor agreement and returned it to Ajilon. He arranged to meet with the Human Resources department at Loblaw to provide information for background checks.
[7] The agreement signed by Mr. Gardiner on behalf of 7326246 was to engage the consultant corporation as an independent contractor. It provided that background and security checks had to be completed. It stated that the company would only be paid for hours actually worked and approved according to proper invoices. It was silent on the amount of work that would be received, 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.
[8] On 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 Mr. Gardiner’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 Mr. Gardiner’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 Mr. Gardiner, and he also noted that he 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.
[9] During this period, Mr. Gardiner had been in touch with Ajilon through Ms. Mehandiratta. On February 23, 2010, Mr. Healey emailed the consultants including Mr. Gardiner and advised that they should pursue other opportunities while he tried to get a firm commitment from Loblaw regarding start dates. On March 5, 2010, Ajilon sent letters to the consultants, including Mr. Gardiner, terminating their agreements. The reason given was that Loblaw no longer required his services. No services had ever been provided. 7326246 and Mr. Gardiner commenced an action against Ajilon for damages for negligent misrepresentation.
Decision of the court below
[10] Deputy 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] 1 S.C.R. 87. Having heard the evidence of Mr. Gardiner and read the emails sent back and forth between him and Ajilon, he found that Mr. Gardiner was relying on what the representatives of Ajilon had said to him “about a job in Loblaws.” He applied the test in Hercules Managements Ltd. v. Ernst & Young, [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 Mr. Gardiner 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 Mr. Gardiner in the course of Ajilon’s business, as it was done in the context of work; and the information was requested by Mr. Gardiner. Thus, he found that a duty of care existed between Ajilon and Mr. Gardiner’s corporation. The trial judge then held that Mr. Gardiner placed foreseeable reasonable and justifiable reliance on representations made by Ajilon. He also found that the duty extended to Mr. Gardiner’s corporation as Ajilon’s representative had dealt with both him and his corporation throughout.
[11] The trial judge found that the representation made to 7326246 was misleading as it portrayed to Mr. Gardiner that there was a “job” for him at Loblaw when there was no firm commitment from that company that they would “employ” Mr. Gardiner 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.
[12] The trial judge went on to find that Ajilon, through Ms. Mehandiratta, acted negligently in making this representation. 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 to Mr. Gardiner that he had secured a place at Loblaw as a Senior Business Analyst “when in fact that was far from the case.” He held that Ms. Mehandiratta should have cautioned him about the uncertainty of the position since there was no certainty until an official at Loblaw had “signed off on a candidate’s hire.”
[13] Deputy Judge Mungovan held that Mr. Gardiner relied upon the representations in advising Mr. Stern of ESP that he had been offered another position and was accepting it. He held that his reliance was “not rash but reasonable on his part” in that he had received an email from Ms. Mehandiratta on February 3, 2010, in which she congratulated him on having been offered the position and made it sound like it was a certainty.
[14] On the issue of damages, he found that Mr. Gardiner had left a four month contract at ESP for a warehouse manager position at $4,200 per month with a possibility of full time employment. He calculated the damages at four months at $4,200 per month, for a total of $16,800. He also found that Ajilon terminated its agreement with Mr. Gardiner and his company effective March 5, 2010, and that Mr. Gardiner then tried to find work. On June 1, 2010, he found a job with Armtec-Brooklin Concrete. The trial judge found that he had made an effort to mitigate his company’s damages.
[15] Finally, on the question of whether the entire agreement clause in the agreement prevented Mr. Gardiner from bringing the action, the Deputy Judge found that the negligent misrepresentation was made by Ms. Mehandiratta, acting on behalf of Ajilon, in stating that there was a job for Mr. Gardiner 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 word “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 Mr. Gardiner 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 Mr. Gardiner’s attention by Ajilon prior to signing the contract.
Positions of the parties
[16] The appellant argues that the trial judge erred by mischaracterizing the evidence and finding that Mr. Gardiner had a “job” – Ajilon did not have a firm commitment from Loblaw that they would “employ” Mr. Gardiner. In fact, Mr. Gardiner was offered a position through his company 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 Mr. Gardiner.
[17] Ajilon argues that the trial judge further erred by failing to consider the evidence presented by Ajilon regarding the representation that was made which showed, it submits, that it was not a negligent misrepresentation as at the time it was made, the offer made was true and accurate. In fact, Mr. Gardiner 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 Mr. Gardiner, the relationship between Loblaw and Ajilon and the terms of the consulting arrangements were inherently uncertain in nature.
[18] The 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 Mr. Gardiner was not a “sophisticated commercial entity/party.”
[19] The appellant takes the position that, where the 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] 2 S.C.R. 78, at 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.
[20] Ajilon 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 that the representation did not constitute a negligent misrepresentation and erred in mischaracterizing Ajilon’s evidence concerning the nature of the opportunity that was offered to Mr. Gardiner.
[21] The 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 Mr. Gardiner was congratulated about an offer from Loblaw but was never told that the offer was subject to a final approval or was conditional in any way. In fact, at the time of Ms. Mehandiratta’s email on February 3, 2010, the paperwork for final approval had not even been submitted to Loblaw. The agreement he signed with Ajilon set a start date of February 10, 2010. When that date arrived but the position had not materialized, he was told the start date was delayed one week to February 17. On February 16, he was told that he would not start the following day.
[22] The respondent was never cautioned that the position had not been approved and may not ever be approved. Mr. Gardiner takes the position that, on the contrary, Ajilon’s approach was to assure him that the work at Loblaw had been offered and the start date was imminent. That there were problems with Loblaw’s approval was not communicated to him until February 19, 2010, and even then, Mr. Healey said that matters still remained undecided at that point. No clear indication on the status of the work was given until he received a notice of termination. The respondent takes the position that there never was a position ready for him and that Loblaw never had made an “offer” capable of acceptance.
The standard of review
[23] The 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] 2 S.C.R. 235, at paras. 5, 8, 10, 26.
[24] The 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 assessments 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. An appellate court will not interfere with the trial judge’s findings of fact unless the error can be identified and shown to have affected the result. The respondent 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”.
[25] The 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
[26] The 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 Mr. Gardiner and his company?
[27] The 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 [the consultants] signed up to contracts”, and that he did not want to lose them to other opportunities. Only later did he inform the consultants, including Mr. Gardiner, that they should pursue other opportunities.
(2) Was the representation untrue, inaccurate or misleading?
[28] This 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 Ms. Mehandiratta was “misleading” because she did not have a firm commitment that they would “employ” Mr. Gardiner as a Senior Business Analyst. On February 3, 2010, Mr. Gardiner was congratulated via telephone about the Loblaw offer and later that day was told to contact Loblaw’s HR department for the criminal and job reference checks. These communications were based upon the email from Mr. Kahn of Loblaw to Mr. Healey of Ajilon, instructing Ajilon to extend an offer to Mr. Gardiner. What Mr. Gardiner was not told until much later was that the position was still 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 Mr. Gardiner was not advised to pursue other opportunities until February 23.
[29] The appellant submits that the court must consider the inherently uncertain nature of consulting contracts and that the nature of the industry and the types of contracts used 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 commitments from the potential analysts that drew them away from other opportunities without letting them know the true nature of the situation.
[30] The appellant makes much of the fact that Mr. Gardiner 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” Mr. Gardiner at the time they made the offer – Loblaw was never to be Mr. Gardiner’s “employer”.
[31] Regardless of the nature of the industry and the potential risks inherent in this type of offer, Ajilon represented an offer of work to Mr. Gardiner and gave him 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?
[32] The 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.
[33] Here, the trial judge found that Ms. Mehandiratta represented to Mr. Gardiner that he had secured a position as a Senior Business Analyst but failed to caution him 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 Mr. Gardiner should have been aware that the 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, Ajilon 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 Mr. Gardiner that the contract or statement of work had yet to be signed off on.
[34] Ajilon also submits that it is common to engage consultants without official paperwork and since the company had recently done this with eight consultants in the same group and no issues had resulted, it was reasonable to represent that Mr. Gardiner had been offered the position without expressly saying that the contract had not yet been signed.
[35] The 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 Mr. Gardiner was not yet certain. Ajilon’s failure to disclose this made its misrepresentation regarding the certainty of the offer negligent.
[36] These 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 Mr. Gardiner had secured a position at Loblaw when Ajilon knew that was not the case. That conclusion was reasonable in the circumstances.
(4) Did the representee rely in a reasonable manner on the negligent misrepresentation?
[37] If 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 Mr. Gardiner relied upon Ajilon’s representation that there was a job for him at Loblaw as he left a position elsewhere. He found his reliance was reasonable. The trial judge referred to the fact that Ajilon sent a number of emails to Mr. Gardiner confirming the position.
[38] The appellant argues that Mr. Gardiner preferred the position at Loblaw to the job at ESP and was willing to take the risk of that position not materializing. The appellant argues that he did not rely on Ajilon’s alleged representation and that it was unreasonable for him to believe the position was a certainty. Rather, they argue Mr. Gardiner 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.
[39] Counsel for the respondent points to the direct evidence that, had Mr. Gardiner been informed that the opportunity was not certain and was not yet approved, he would have kept the other position.
[40] The trial judge found that Ajilon intended for Mr. Gardiner to rely on its representations and make himself exclusively available for the Loblaw position. It was negligent for Ajilon to make statements about the position and then not accept the responsibility for the intended effect of such statements. In my view, it was open to the trial judge to reach this determination on the evidence.
(5) Was the reliance detrimental to the representee in the sense that damages resulted?
[41] The trial judge found that Mr. Gardiner was entitled to damages for the loss of the position at ESP. Although he had not yet passed the background checks for the Loblaw position, these were formalities and no issue with those checks was raised by Loblaw. It was not reckless to leave the other position before completion.
[42] The evidence was that Mr. Gardiner left a contract where he was to be paid for four months at $4,200 per month. When Ajilon terminated the agreement, Mr. Gardiner looked for work and found a job with Armtech-Brooklin Centre commencing on June 1, 2010.
[43] The trial judge held that he was satisfied with Mr. Gardiner’s efforts to mitigate. He ordered damages for the amount of the contract that he rejected in order to take the Loblaw’s position. The trial judge did not err in making his conclusions on damages.
The entire agreement clause
[44] Clause 30 of the agreement signed by Mr. Gardiner on behalf of himself and 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 ….
[45] The 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), 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.
[46] The 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.
[47] He 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 Mr. Gardiner 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.
[48] The 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.
[49] The 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 Mr. Gardiner was not a “sophisticated commercial party” when he had previous experience in the IT industry as an independent contractor.
[50] The 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.
[51] The 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), 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.
[52] The 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.
[53] Under 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.
[54] This 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.
[55] The 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] 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.
[56] In 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 exculpatory 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.
[57] There 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.
[58] Similarly, 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), 152 D.L.R. (4th) 671 (Ont. C.A.), at para. 29; Zippy Print Enterprises Ltd. v. Pawliuk (1994), 100 B.C.L.R. (2d) 55, at para. 45; Roberts v. Montex Development Corporation (1979), 100 D.L.R. (3d) 660 (B.C.S.C.).
[59] McCamus 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.
[60] This passage illuminates the importance of the trial judge’s factual findings that Ajilon did not notify Mr. Gardiner of the entire agreement clause and that there could not have been any realistic expectation that he would have understood its importance without it being brought home to him. While the standard form contract as a whole was not strictly offered to Mr. Gardiner on a “take-it-or-leave-it basis”, the enforcement of this particular clause would nevertheless impose a “harsh impact” on him.
[61] In 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.
[62] On 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.
[63] Step two of the question 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), [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 Mr. Gardiner 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 Mr. Gardiner was not unsophisticated because of his 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 his access to information regarding this uncertainty was controlled by Ajilon. I conclude that Ajilon used its stronger informational position in the circumstances to obtain Mr. Gardiner’s supposed consent to an improvident clause.
[64] Step 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 Mr. Gardiner 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.
[65] If 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 note 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
[66] In 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 Mr. Gardiner 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.
[67] For 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