Court of Appeal for Ontario

Date: 2018-07-06 Docket: C64764

Judges: Epstein, Lauwers and van Rensburg JJ.A.

Between

Manorgate Estates Inc. and Manorgate Estates Kingston Road Inc. Plaintiffs (Appellants)

and

Kirkor Architects and Planners Defendant (Respondent)

Counsel

Michael Simaan, for the appellants

Charles Simco and Matthew Urback, for the respondent

Heard

June 28, 2018

Appeal

On appeal from the order of Justice Lise G. Favreau of the Superior Court of Justice, dated November 29, 2017, with reasons reported at 2017 ONSC 7154.

Reasons for Decision

Background

[1] The appellants ("Manorgate") build residential homes. The respondent ("Kirkor") is an architectural consulting firm retained by Manorgate to assist with a construction project. On September 23, 2011, Manorgate entered into an agreement (the "First Agreement") with Kirkor under which Kirkor agreed to provide design services for a project involving the construction of 12 townhouses with above grade parking at a location in Toronto (the "smaller project").

[2] After the First Agreement was executed the City of Toronto advised Manorgate that it would prefer a higher density development at the planned location. The proposed project was then changed to 24 townhomes with below grade parking (the "larger project"). Manorgate's principal met with a senior partner of Kirkor on September 28, 2011 to discuss this new concept. After this meeting, on November 18, 2011, the parties entered into a design agreement with respect to the larger project (the "Second Agreement").

[3] Both agreements contained a clause precluding Manorgate from suing Kirkor based on any pre-contractual representations (the "Entire Agreement Clause").

The Alleged Negligent Misrepresentation

[4] Manorgate says that at the September 28, 2011 meeting Kirkor's representative represented to Manorgate's representative that the larger project would cost approximately $130 per square foot – the same price per square foot that Manorgate had originally estimated for the smaller project (the "Alleged Negligent Misrepresentation"). Manorgate alleges that the actual cost per square foot of the larger project turned out to be significantly higher than $130, such that the larger project was no longer financially viable. Manorgate eventually reverted back to its original plan for the smaller project.

[5] Manorgate claimed that it entered into the Second Agreement in reliance on the Alleged Negligent Misrepresentation. It therefore brought this proceeding based on the Alleged Negligent Misrepresentation for approximately $530,000 – the amount Manorgate claims are the unrecoverable costs associated with having to abandon the larger project, including fees it paid to Kirkor.

Motion Judge's Decision

[6] Kirkor denied the representation. In the alternative, Kirkor relied on the Entire Agreement Clause in the Second Agreement to preclude liability for any pre-contractual representations.

[7] Kirkor moved for summary judgment.

[8] The motion judge found that it was not necessary to decide whether Kirkor made the Alleged Negligent Misrepresentation. She granted summary judgment dismissing the action, concluding that the Entire Agreement Clause in the Second Agreement operated as a complete defence to Manorgate's claim.

[9] Critical to the motion judge's conclusion was her finding that the Second Agreement was not a continuation of the First Agreement but an entirely new agreement. It followed that the Entire Agreement Clause contained in the Second Agreement superseded the Alleged Negligent Misrepresentation, with the effect that Manorgate was not entitled to rely on the representation even if it had been made by Kirkor.

Appeal

[10] Manorgate appeals primarily on the basis that the motion judge erred in giving effect to the Entire Agreement Clause.

Court of Appeal Analysis

Whether the Second Agreement Was a Separate Contract

[11] We do not accept Manorgate's submission that the motion judge erred in finding that the Second Agreement was a separate agreement rather than a revision of the First Agreement, and accordingly that the Alleged Negligent Misrepresentation was excluded by the Entire Agreement Clause. The motion judge rejected that argument and reasoned that the change in the scope and terms of the project in the Second Agreement were so fundamental that they amounted to a new agreement.

[12] While correctly identifying the substantive requirements for the formation of a valid contract is an issue of law, applying those requirements to a given fact scenario and interpreting the language of two apparent agreements (as the motion judge did here) raises questions of mixed law and fact: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at paras. 49-51, 53. The motion judge's determination that the First Agreement and Second Agreement were two separate contracts was a finding of mixed law and fact based on the record before her. It is entitled to deference on appeal.

[13] Manorgate has identified no extricable error of law in the motion judge's determination of this critical issue. The motion judge proceeded correctly by applying principles that govern contractual interpretation and giving the parties' words their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time they entered into the contracts: Sattva, at para. 47. As the motion judge found, the fundamental terms of the Second Agreement were different than the First Agreement. Moreover, we note that Manorgate's representative's evidence on discovery was that the Second Agreement was "a new contract for a new design".

Enforceability of the Entire Agreement Clause

[14] We also do not accept Manorgate's argument that the motion judge erred in determining that the Entire Agreement Clause was broad enough to exclude the Alleged Negligent Misrepresentation. Manorgate's argument hinges on its position that the two agreements are standard form contracts and therefore the motion judge's finding is to be reviewed on a standard of correctness.

[15] Although the agreements were not amended prior to signature, they were not standard form agreements of the nature contemplated by the Supreme Court of Canada in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23. On Manorgate's evidence the agreements were open to being amended prior to signing. The motion judge's interpretation that the Second Agreement, specifically the Entire Agreement Clause, was broad enough to apply to the Alleged Negligent Misrepresentation is accordingly an exercise in contractual interpretation entitled to deference: Ledcor, at para. 21. Among other things, we note that a plain reading of the Second Agreement makes it clear that Kirkor did not agree to provide any costing services. As the motion judge acknowledged, the contract specifically states that "[d]etailed estimates of construction costs, quantify surveys or life cycle cost studies" are not part of the services to be provided by Kirkor pursuant to the agreement.

[16] In the light of all of the circumstances, the Entire Agreement Clause was broad enough to exclude the Alleged Negligent Misrepresentation. The motion judge's finding to this effect was supported by the record and is entitled to deference.

Interpretation of Costing Services Exclusion

[17] We do not accept the additional submission Manorgate made before this court that the motion judge erred in her interpretation of the provision in the Second Agreement excluding detailed estimates of construction costs from the services provided. The motion judge referred to this provision in rejecting the argument made before her that preliminary costing was part of the services Kirkor was to perform. She stated, at para 44:

I reject the plaintiff's argument that the use of the word "detailed" implies that preliminary or high level costing forms part of the contract. Nothing else in the contract supports such an interpretation.

We see no error.

Unconscionability and Public Policy

[18] The motion judge also made no error in failing to find a triable issue as to whether the Entire Agreement Clause should be unenforceable on the basis that it was unconscionable and against public policy.

[19] The motion judge reasonably found there to be no legally relevant disparity in bargaining power or any other basis for finding that Kirkor took advantage of Manorgate. In coming to this conclusion the motion judge considered the level of industry experience of the two parties and found that Kirkor did not improperly induce Manorgate to enter into the Second Agreement. On this record, we see no reason to interfere with this conclusion.

Good Faith Argument

[20] We would also reject Manorgate's argument concerning the motion judge's failure to enforce a duty of good faith between the parties, as it is not properly raised at first instance on appeal.

Disposition

[21] The appeal is therefore dismissed. Kirkor is entitled to its costs of the appeal fixed in the amount of $10,000, inclusive of HST and disbursements.

"Gloria Epstein J.A."

"P. Lauwers J.A."

"K. van Rensburg J.A."