COURT OF APPEAL FOR ONTARIO

DATE: 20220331 DOCKET: C68141

Strathy C.J.O., Simmons and Zarnett JJ.A.

BETWEEN

Pine Valley Enterprises Inc. Plaintiff (Appellant)

and

Earthco Soil Mixtures Inc. , G & L Group Ltd., Richard Outred and Orazio Valente Defendants (Respondent)

Counsel: Vito S. Scalisi, for the appellant Mark Klaiman, for the respondent

Heard: January 21, 2022 by video conference

On appeal from the judgment of Justice Shaun Nakatsuru of the Superior Court of Justice, dated February 10, 2020, with reasons reported at 2020 ONSC 601.

Zarnett J.A.:

Introduction

[1] The appellant, Pine Valley Enterprises Inc. (“Pine Valley”), bought topsoil from the respondent, Earthco Soil Mixtures Inc. (“Earthco”), for use in a City of Toronto project designed to reduce basement flooding. The topsoil did not meet the City’s specifications. The City required Pine Valley to remove and replace it, causing Pine Valley a loss the trial judge assessed at $350,386.23.

[2] Pine Valley claimed that Earthco was responsible for its loss. It asserted that Earthco breached the parties’ contract governing the sale of the topsoil (the “Contract”), specifically the condition implied into the Contract by s. 14 of the Sale of Goods Act, R.S.O. 1990, c. S.1 (the “SGA”). Section 14 of the SGA provides that where goods are sold by description, there is an implied condition in the contract of sale that the goods supplied correspond to that description.

[3] The trial judge made several findings that are not challenged in this appeal. He found that the Contract was for the sale of goods by description within the meaning of s. 14 of the SGA. He found that Earthco had promised to sell “R Topsoil”, a specific composition of topsoil described in test results Earthco provided, that would meet the City’s specifications. And he found that “Pine Valley did not get the soil it bargained for” since there was “a significant variation between the soil promised and the soil delivered”. That variation caused Pine Valley’s loss due to the removal and replacement it had to perform.

[4] The trial judge nonetheless dismissed the action on the basis of exclusionary clauses in the Contract.

[5] The Contract provided that Pine Valley had the right to test and approve the topsoil at its own expense at Earthco’s facility before it was shipped. It further provided that if Pine Valley waived its right to do so, Earthco would “not be responsible for the quality of the material once it [left Earthco’s] facility”.

[6] The trial judge held that by these exclusionary clauses, Earthco had successfully excluded liability for failing to supply topsoil that corresponded with the description in the Contract, that is, for breach of the implied condition in s. 14 of the Act, as Pine Valley failed to do its own test before taking delivery.

[7] A vendor may, by express agreement, exclude the implied conditions in the SGA, but must use explicit language, which is clear and direct, to do so. This principle “reflects a policy choice to give primacy to legislative purposes, unless the parties have clearly expressed their intention for a different private ordering of their rights and obligations”: Geoff R. Hall, Canadian Contractual Interpretation Law, 4th ed. (Toronto: LexisNexis Canada, 2020), at p. 179. The issue in this appeal is whether the trial judge committed a reversible error in finding that the exclusionary clauses constituted an express agreement composed of explicit, clear, and direct language sufficient to oust liability for breach of the implied condition in s. 14 of the Act that the topsoil supplied corresponded to the contractual description.

[8] For the reasons below, I conclude that the appeal must be allowed.

[9] The implied condition in s. 14 of the SGA, applicable when a sale is by description, relates to the identity of the goods sold – that they correspond to the description – not to their quality. This is in contrast to the implied conditions in s. 15 of the SGA concerning fitness for purpose and merchantability, which relate to the quality of the goods. The trial judge found that the Contract was for a sale by description, that the description was of soil with a composition as described in specific soil tests supplied by Earthco, and that the soil supplied did not correspond to the contractual description. Given these findings, which are accepted by Earthco in this court, the nature of the implied condition in s. 14 of the SGA – one pertaining to identity, not quality – is pivotal.

[10] Nothing in the language of the exclusionary clauses refers clearly, directly, or explicitly to any statutory conditions, let alone to one about the identity of what was sold. The express language of the exclusionary clauses disclaims responsibility only for quality, not for identity. Although the language of a contract must be read in light of its factual matrix, the factual matrix cannot be used to overwhelm the text and insert into the contract an explicit exclusion of liability for breach of the statutory condition in s. 14 of the SGA concerning the identity of the goods that the trial judge found Earthco had promised would be supplied.

Background

[11] In 2011, the City hired Pine Valley as a contractor for a project intended to deal with basement flooding in residences in a neighborhood in North York. Pine Valley was required to build a dry pond to capture excess water in the neighborhood, so that it would drain away. This in turn required Pine Valley to install drainage pipes and proper topsoil for drainage, as well as turf and recreational equipment.

[12] The City rejected soils from several suppliers Pine Valley proposed to use, which led it to contact Earthco, a large custom topsoil provider.

[13] The City’s specifications required a particular composition of topsoil. It had to be: 45 percent to 70 percent sand, 1 percent to 35 percent silt, and 14 percent to 20 percent clay. On October 3, 2011, Pine Valley gave Earthco its specifications, and on the same day, Earthco provided Pine Valley with laboratory tests for three topsoils, one of which was “R Topsoil”. The tests had been performed in August 2011 and set out the composition, as among sand, silt, and clay, of each of the soils.

[14] The August test results for R Topsoil indicated a composition of 46 percent sand, 36 percent silt, and 18 percent clay. Pine Valley shared those results with the City’s consultant.

[15] The City’s consultant advised Pine Valley that R Topsoil would be acceptable if the organic matter in it were increased to between 3 and 5 percent (which could be accomplished by the addition of peat). [1] R Topsoil was selected by Pine Valley.

The Contract

[16] The Contract for the supply of soil was entered into on October 5, 2011. Although the purchaser in the Contract was named as Furfari Paving, the parties at trial agreed and the trial judge accepted that the Contract was between Pine Valley as purchaser and Earthco as seller.

[17] The Contract was for 3,678 cubic yards of “Screened topsoil with extra Organics added” for a price of $66,168. “Soil Testing if required” was priced at $300 per test. The Contract contained the following two provisions (the “exclusionary clauses”):

6. [Pine Valley] has the right to test and approve the material at its own expense at our facility before it is shipped and placed. Please contact Richard Outred [an Earthco representative] to arrange.
7. If [Pine Valley] waives its right to test and approve the material before it is shipped, Earthco Soils Inc. will not be responsible for the quality of the material once it leaves our facility.

[18] The trial judge found that even though the Contract “only refers to soil” (i.e., “Screened topsoil”), the subject matter of the Contract was R Topsoil having the composition set out for that soil in the August 2011 test results. He stated that:

[W]hen the factual circumstances existing at the time are examined, including the provision of [the August] test results of three soils, Earthco’s communication to Pine Valley promised that it was selling R Topsoil which had the qualities set out in its [August] test results. It was not promising to sell any soil regardless of composition/texture.

Delivery of the Topsoil

[19] Pine Valley did not exercise its right under the Contract to test the topsoil at the Earthco facility. After the Contract was entered into, Pine Valley pressed for immediate delivery, as it was under a City-imposed deadline and was facing financial penalties. On October 6, 2011, Pine Valley was advised by email from Earthco that Pine Valley had “the right to test any material we [Earthco] prepare for you before it gets shipped. However, once it leaves our yard, ownership of the material (including all risks associated with it) passes from us to you. Put another way, we are no longer responsible for the material once it leaves our yard.” [2]

[20] Pine Valley nonetheless insisted on immediate delivery. Topsoil was delivered between October 7 and 19, 2011 and spread on the site when delivered.

The Variation Between the Topsoil Promised and Delivered

[21] In November 2011, ponding of water was discovered on the site. The City took soil samples for examination and testing. The trial judge found that the testing showed that the soil composition “differed significantly from the [August 2011] test results of the R Topsoil” and that “[t]here was substantially more clay content in the topsoil that was actually delivered than what the [August 2011] test results of R Topsoil had indicated.”

[22] On December 2, 2011, the City officially notified Pine Valley that the topsoil on the site was to be removed and replaced. Pine Valley did so, incurring costs.

[23] Pine Valley notified Earthco in a letter dated December 5, 2011 that it expected compensation. Earthco responded that Pine Valley had waived testing of the material before shipment and explicitly assumed all responsibility for the material once it left Earthco’s premises.

The Trial Judge’s Decision

[24] Pine Valley brought an action against Earthco and several other parties. At the outset of trial, the action was dismissed against all parties except Earthco.

[25] Pine Valley’s theory of liability at trial was that the Contract provided for a sale by description within the meaning of s. 14 of the SGA, which provides in relevant part that “[w]here there is a contract for the sale of goods by description, there is an implied condition that the goods will correspond with the description”. It argued that the implied condition was breached as the goods did not correspond with the description, and the exclusionary clauses were not clear enough to exempt Earthco from liability for this breach.

[26] The trial judge found that the Contract provided for a sale by description within the meaning of s. 14 of the SGA. After referring to case law that holds that “description” in s. 14 is to be understood as “identification of the goods rather than quality”, he found that the Contract identified the goods Earthco promised to sell as R Topsoil with the “qualities set out in [the August 2011] test results. It was not promising to sell any soil regardless of composition/texture.”

[27] The trial judge then considered whether “the implied condition of correspondence [between the goods identified in the Contract and the goods delivered had] been breached.” He identified the test for breach as including a requirement that there be a significant variation between the goods delivered and the goods as described in the Contract, such that the buyer could say they were of a different kind from those agreed to be purchased. He found that aspect of the test to be met. He stated:

Although the bar for correspondence between goods and description is relatively high, it is clear here that Pine Valley did not get the soil it bargained for. This was not a minor variation or discrepancy. The test results done at the City Consultant’s insistence after the soil had been spread and the expert evidence presented at trial showed that there was a significant variation between the soil promised and the soil delivered. The variation was such that it led to the problem of ponding in the Project.

[28] If it were not for the exclusionary clauses, the trial judge would have found that the test for breach of the implied condition in s. 14 was met, and he would have awarded damages for that breach (which he assessed at $350,386.23). The trial judge found, however, that the presence of the exclusionary clauses led to a different result.

[29] The trial judge considered s. 53 of the SGA, which permits parties, by express agreement, to negative liability implied by law. He referred to case law that requires that contractual language ousting a statutory entitlement under the SGA be clear and unambiguous. He discussed two Ontario cases that specifically held that liability for breach of SGA conditions of fitness for purpose is not excluded if the exclusionary clause fails to make explicit reference to statutory conditions. He distinguished those cases on the basis that they dealt with detailed and sophisticated contracts, whereas the Contract in this case was “drafted in very simple language”.

[30] The trial judge observed that the exclusionary clauses in the Contract did not explicitly oust statutorily imposed conditions nor clearly articulate the parties’ intentions with respect to such conditions. But he held that they were “direct and explicit that Earthco [was] meant to be protected from any liability if Pine Valley fail[ed] to test its soil before shipping”, that they “state unequivocally Earthco will be absolved of liability if Pine Valley fails to test its topsoil order prior to shipping”, and that they “specifically absolved Earthco of liability in these circumstances”. He drew this conclusion from the wording of the Contract, as well as the following elements of the factual matrix: the August 2011 test results were dated; the soil to be shipped was taken from large mounds removed from development projects that would have a shifting composition as the mound was worked through over time; and Pine Valley was an experienced commercial purchaser. He held that the purpose of the provision for testing was to ensure that the soil met the City’s requirements, and the purpose of the exclusionary clauses was to avoid a situation in which a customer could fail to test and hold Earthco liable.

[31] He concluded:

In my view, [the exclusionary] clauses … of the Contract are clear and unambiguous and oust the liability for the seller created by s. 14 of the SGA. While the resulting situation for Pine Valley was unfortunate, there is no reason why the exclusionary clauses should not apply to this situation. While I have sympathy for [Pine Valley], I find that Pine Valley made something of an expensive but calculated mistake by not testing the topsoil prior to shipping.

ANALYSIS

The Parties’ Positions

[32] On appeal, Pine Valley argues that the trial judge failed to follow binding case law and thus erred in law in finding that the exclusionary clauses ousted the liability of Earthco under the implied condition in s. 14 of the SGA, and that he further erred in using evidence outside of the Contract to deviate from its text.

[33] Earthco argues that the trial judge applied the correct principles and that his interpretation of the Contract, in light of the factual matrix, is subject to a deferential standard of review and is not the product of any reversible errors.

The Standard of Review

[34] The question at the heart of this appeal is one of contractual interpretation, an “exercise in which the principles of contractual interpretation are applied to the words of the written contract, considered in light of the factual matrix”: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 50. Deference is owed to a trial judge’s interpretation of a commercial contract, unless “an extricable question of law [arises] from within what was initially characterized as a question of mixed fact and law”: Sattva, at para. 53. “Legal errors made in the course of contractual interpretation include ‘the application of an incorrect principle, the failure to consider a required element of a legal test, or the failure to consider a relevant factor’…. Moreover, there is no question that many other issues in contract law do engage substantive rules of law”: Sattva, at para. 53 (citation omitted).

[35] In my view, whether the exclusionary clauses ousted the condition implied by s. 14 of the SGA in this case involves extricable questions of law. These questions relate to the legal nature of the statutory implied condition, the content and meaning of the legal test for excluding a statutory implied condition from a sales contract, and the use of the factual matrix to inform the meaning of the express exclusionary language. Deference is not owed on these questions, and a standard of correctness applies.

[36] The trial judge made three related errors on these questions. First, in interpreting the exclusionary clause, he failed to take into account the nature of the implied condition in s. 14, which relates to the identity of the goods to be delivered rather than the quality of those goods. This distinction is important because the express language of the exclusionary clause only relates to “quality”. Second, he failed to properly interpret the meaning of the requirement that explicit, clear, and direct language must be used to exclude a statutory condition, and therefore did not give proper effect to the failure of the exclusionary clauses to refer to identity of the goods or to statutory conditions. Third, he read the language of the exclusionary clauses in broader terms than their actual words, which neither the requirement for express and explicit language, nor proper resort to the factual matrix, permits.

The Implied Condition in s. 14 of the SGA Relates to the Identity of the Goods Sold, Not Their Quality

[37] Section 14 of the SGA, entitled “Sale by description”, provides:

Where there is a contract for the sale of goods by description, there is an implied condition that the goods will correspond with the description, and, if the sale is by sample as well as by description, it is not sufficient that the bulk of the goods corresponds with the sample if the goods do not also correspond with the description. [Emphasis added.]

[38] Section 15 of the SGA, entitled “Implied conditions as to quality or fitness”, provides:

Subject to this Act and any statute in that behalf, there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale, except as follows:

1. Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required so as to show that the buyer relies on the seller’s skill or judgment, and the goods are of a description that it is in the course of the seller’s business to supply (whether the seller is the manufacturer or not), there is an implied condition that the goods will be reasonably fit for such purpose, but in the case of a contract for the sale of a specified article under its patent or other trade name there is no implied condition as to its fitness for any particular purpose.
2. Where goods are bought by description from a seller who deals in goods of that description (whether the seller is the manufacturer or not), there is an implied condition that the goods will be of merchantable quality, but if the buyer has examined the goods, there is no implied condition as regards defects that such examination ought to have revealed.
3. An implied warranty or condition as to quality or fitness for a particular purpose may be annexed by the usage of trade.
4. An express warranty or condition does not negative a warranty or condition implied by this Act unless inconsistent therewith.

[39] The subject matter of the two sections is different. The “description” referred to in the SGA (and comparable acts in the U.K. and elsewhere in Canada) involves identity of the goods, not their quality: Bakker v. Bowness Auto Parts Co. (1976), 68 D.L.R. (3d) 173 (Alta. S.C. (A.D.)), at p. 178 (“[I]t is clear that the description of which the section [of the SGA equivalent] speaks is only that which, as a term of the contract, identifies the subject-matter of the sale”); Ashington Piggeries Ltd. v. Christopher Hill Ltd., [1972] A.C. 441 (H.L. (Eng.)), at p. 466 (“The language used [in the SGA equivalent] is directed to the identification of goods”).

[40] Lord Diplock noted in Ashington Piggeries, at p. 503, that in a sale by description, the parties may employ as broad or narrow a description of the goods to be delivered as they choose. The broader the description, the more difficult it will be for the buyer to argue that what was supplied breached the identity condition. As long as the goods correspond to the description – as long as they are, as far as their identity is concerned, the goods described – it is irrelevant for s. 14 purposes whether the goods are of poorer quality than promised.

[41] Thus, in Ashington Piggeries, the identity condition was not breached by the sale of mink food made up of Norwegian herring meal that, unknown to the parties, contained a poisonous substance. The contract contained a broad description of the identity of the goods to be delivered: “Norwegian herring meal”. As far as identity was concerned, that corresponded to what was supplied: “Herring meal is still herring meal notwithstanding that it may have been contaminated”. Provisions of the agreement that the herring meal had to be of “fair average quality of the season” pertained only to the quality of the goods, not to their identity: at pp. 472, 475.

[42] On the other hand, in a sale by description, if the goods delivered do not correspond with what was promised, a breach of the identity condition will occur even if what is delivered is of equivalent quality. As the court stated in Bakker, at p. 181:

Sections 16 and 17 of the Act [corresponding to ss. 14 and 15 of the SGA] imply separate conditions of the contract in respect of separate specified circumstances. “Merchantable quality” under s. 17(4) is not to be taken as a measuring stick in determining whether goods correspond with their contract description under s. 16; nor is fitness for purpose under s. 17(2) germane to such a determination. In Arcos, Ltd. v. E.A. Ronaasen & Son Lord Buckmaster said at p. 474: “The fact that the goods were merchantable under the contract is no test proper to be applied in determining whether the goods satisfied the contract description…”.

[43] The distinction between identity and quality is important in this case. The trial judge found a sale by description. That description was narrow. The description – the identity of the goods – was R Topsoil with the composition set out in the August 2011 test results. He came to these conclusions (which are not in issue on this appeal as they are not challenged, but rather are accepted by Earthco in this court) after adverting to the difference between terms of a contract that specify the quality or standard of the goods and those that form the description. His conclusions mean that the composition described for R Topsoil in the August test results goes to the identity of the goods, not their quality. Indeed, he found that Pine Valley did not get what was promised in terms of the identity of the goods because of the significant variation in composition.

[44] Although the trial judge adverted to the difference between statements about goods that go to their quality and those that go to identity, and found that the identity of what was to be delivered was R Topsoil with the composition described in the August test results, he was required to go further and apply that legal distinction when interpreting the exclusionary clauses.

[45] The significance, to an exclusionary clause’s interpretation, of the difference between a condition concerning the identity of the goods under s. 14 and one that relates to their quality was described by Professor Gerald Fridman in Sale of Goods in Canada, 6th ed. (Toronto: Thomson Reuters Canada Ltd., 2013), at p. 152, as follows:

If the wrong goods are delivered, the buyer may reject the goods proffered by the delivery, and sue for a breach of contract, and an exemption or exclusion clause will not release the seller from liability for breach of contract, since he will not have fulfilled the contract in any way. On the other hand, if what is involved is some characteristic of the goods, not their identity, an exemption or exclusion clause, if appropriately worded, and if not precluded by consumer protection legislation, may result in the release of the seller from any kind of liability for breach of contract. [Emphasis added; footnotes omitted.]

[46] To the extent that the passage from Fridman suggests that the implied condition in s. 14 could never be excluded, it may go too far. Section 53 of the SGA, which provides that duties or liabilities implied by law may be negatived by express agreement, is broad enough to include the liability created by s. 14. Although the parties did not cite any case where the s. 14 condition had been excluded, and it appears counterintuitive to posit an agreement in which the seller both promises to deliver something specific and also excludes any promise that it will do so, the possibility exists.

[47] But as is explained in the next section, there is a high standard – explicit, clear, and direct – that must be applied to language that purports to exclude any implied conditions in the SGA. The distinction between the legal nature of the implied condition in s. 14 of the SGA relating to the identity of the goods and implied conditions relating to quality is important to the question of whether that standard was satisfied, with respect to the identity condition, by the exclusionary clauses that only expressly referred to the “quality of the material”.

Explicit Language Must be Used to Exclude Implied SGA Conditions

[48] Section 53 of the SGA permits the parties to contract out of liability implied by law, but only if they do so by “express agreement”. Section 53 provides: “Where any right, duty or liability would arise under a contract of sale by implication of law, it may be negatived or varied by express agreement or by the course of dealing between the parties, or by usage, if the usage is such as to bind both parties to the contract.” [3]

[49] Binding case law has explained what is meant by an express agreement in this context. It must be “explicit” and “clear and direct”.

[50] In Chabot v. Ford Motor Co. of Canada (1982), 39 O.R. (2d) 162 (H.C.), Eberle J. held that it is a principle of interpretation of exclusion clauses that while general language may be sufficient to exclude what otherwise might be express conditions or warranties, conditions and warranties implied by sale of goods acts may be excluded only by explicit language. And, since there is a legal difference between warranties and conditions, the requirement for explicit language means that an explicit exclusion of implied warranties does not exclude statutorily implied conditions: at pp. 174-75.

[51] Chabot was approved by the Supreme Court of Canada in Hunter Engineering Co. v. Syncrude Canada Ltd., [1989] 1 S.C.R. 426. Dickson C.J. stated, at pp. 449-50: “If one wishes to contract out of statutory protections, this must be done by clear and direct language, particularly where the parties are two large, commercially sophisticated companies. This seems to be well-established in the case law, as Eberle J. makes clear in Chabot”.

[52] In Gregorio v. Intrans-Corp. (1994), 18 O.R. (3d) 527 (C.A.), at pp. 535-36, this court held: “Although a vendor may exclude the implied conditions contained in the Sale of Goods Act, he must use explicit language to do so”. The court cited Chabot, and its approval in Hunter Engineering, for this principle.

[53] How explicit, clear, and direct must the language be? In Chabot, Eberle J. noted that a contract expressly stating that “[t]here are no representations, warranties or conditions, express or implied, statutory or otherwise, other than those herein contained” would exclude the SGA implied condition of fitness for purpose. But an exclusion clause that stated there were no warranties, expressed or implied, other than that expressly given in the transaction, did not exclude the SGA implied conditions, as it made no reference to conditions, implied conditions, or statutory conditions: at pp. 174-75.

[54] In Gregorio, the court found that the provision of a specific warranty, coupled with a disclaimer of all other express or implied warranties and any warranty of merchantability or fitness for purpose, was insufficient to exclude the SGA implied conditions of fitness for purpose and merchantability. The court held that such language failed the requirement for explicit language, as there is a legal difference between a warranty (which was explicitly addressed) and a condition (which was not): at pp. 535-36.

[55] These well-established rules were followed in two cases distinguished by the trial judge: IPEX Inc. v. Lubrizol Advanced Materials Canada Inc., 2012 ONSC 2717, 4 B.L.R. (5th) 148, leave to appeal to Div. Ct. refused, 2012 ONSC 5382 and Haliburton Forest & Wildlife Reserve Ltd. v. Toromont Industries Ltd., 2016 ONSC 3767. In IPEX, the court found an exclusion clause that stated that a limited warranty was the only warranty given, and excluded all other warranties, express or implied, including any implied warranties of fitness for purpose or merchantability, did not exclude the SGA implied conditions: at paras. 26, 40-41. In Haliburton, the court held that a clause that excluded representations and warranties with respect to fitness for purpose, but made no reference to an exclusion of a condition of fitness for purpose, did not exclude the SGA implied condition: at paras. 74-77.

[56] The parties did not cite any case where the SGA implied conditions were excluded by language that lacked a reference to “conditions” and “statutory”. But even if other language could suffice, it is clear from the cases that the legal meaning of explicit, clear, and direct language in this context means at the very least that the language must refer to the type of legal obligation the SGA implies – reference to a different legal obligation will not suffice. This is the principle that explains why excluding the implication of a warranty or statutory warranty does not exclude an SGA implied condition, a different type of legal obligation.

The Trial Judge’s Approach to the Explicit Language Requirement Did Not Comport With These Principles

[57] With respect, the trial judge erred when he distinguished IPEX and Haliburton on the basis that the contracts in those cases were sophisticated. The principles applied in those cases did not turn on the sophistication of the contract. As Hunter Engineering makes plain, the requirement of clear and direct language is one imposed on sophisticated commercial parties, which Earthco and Pine Valley were.

[58] In my view, although the trial judge articulated the need for explicit language, he erred in law in finding that it was met even though the Contract did not, as he noted, explicitly address or oust the implied conditions in the SGA, or clearly articulate the intentions of the parties vis-à-vis the implied terms in the SGA.

[59] Given the requirement for explicit, clear, and direct language, I return to the language of the exculpatory clauses. The operative words are that if Pine Valley does not test the soil, Earthco “will not be responsible for the quality of the material”. The implied condition in s. 14 addresses responsibility for the identity of the goods, not quality. Just as an exclusion that speaks to implied warranties does not exclude implied conditions because of the legal difference between those terms, an exclusion of responsibility for quality cannot exclude an implied statutory condition imposing responsibility for the identity of the goods, which covers different legal territory.

[60] The trial judge did not explain how the word “quality” in the exculpatory clauses could mean “identity”. Rather, in various passages of his reasons, the trial judge referred to the exculpatory clauses without referring to the “responsible for the quality” wording. He said for example: “The words are clear and unambiguous and say that if Pine Valley fails to test and to approve the topsoil before shipping, Earthco cannot be held responsible for any defects”. He also said that: “[T]he language chosen by the parties … is direct and explicit that Earthco is meant to be protected from any liability if Pine Valley fails to test its soil before shipping”. He also described the exclusionary clauses as stating unequivocally that “Earthco will be absolved of liability if Pine Valley fails to test its topsoil order prior to shipping” (emphasis added).

[61] Given the requirement that to negative liability under a statutory implied condition, there must be an express agreement that is effected by explicit, clear, and direct language, the actual language of the exclusionary clause must remain central to the analysis. Without deciding whether the type of language the trial judge used to describe the exclusionary clauses would, if expressed, have been sufficient, the point is that it was not express or explicit.

[62] The express language could not be expanded by recourse to the factual matrix. The interpretation of a written contractual provision must be grounded in the text read in light of the entire contract. But there is a legal limit on the interpretive use of the factual matrix. The factual matrix cannot be used to overwhelm the text, or to change the meaning of the words used: Sattva, at para. 57.

[63] The factual matrix cannot change “responsible for the quality” in the exculpatory clauses to “responsible for the identity”, let alone add words to those clauses that were not used (such as “under any condition express or implied, statutory or otherwise”).

[64] Earthco expressed itself in broader terms than the exclusionary clauses in the email it sent on October 6, 2011, after the Contract was signed. [4] Pine Valley argues that the trial judge erred in considering post-Contract events in order to interpret the Contract since only facts reasonably known to the parties at the time of contracting – that is, on or before October 5, 2011 – form part of the factual matrix. I agree with Earthco that the trial judge did not use the email exchange to interpret the Contract. He noted that there was no allegation that the Contract was amended by the email exchange. He viewed the email exchange as merely confirming the parties’ intentions to adhere to the terms of the Contract. It follows that the correct interpretation of the Contract is not influenced, one way or the other, by the subsequent email exchange. Earthco does not argue that the subsequent email exchange gives rise to any estoppel, waiver, release, or other independent basis to resist Pine Valley’s claim.

Conclusion

[65] Within a general framework of freedom of contract, the SGA prescribes the expectations of parties to a commercial sale transaction such as the one between the parties. The requirement of explicit, clear, and direct language to exclude a statutory condition implied into a sale agreement by the SGA is important to the legislative scheme. Contractual interpretation must proceed recognizing that this requirement is superimposed on other interpretive principles.

[66] “This simple rule represents an interesting policy choice that differs from the [typical] principles of contractual interpretation, which give primacy to the parties’ private ordering of their affairs and primarily seeks to give accurate effect to their intentions without regard for external policy goals.” As noted above, this principle “reflects a policy choice to give primacy to legislative purposes, unless the parties have clearly expressed their intention for a different private ordering of their rights and obligations”: Hall, at pp. 178-79.

[67] The explicit language requirement reflects the importance that must be ascribed to the legislature’s choice that, in the circumstances the SGA prescribes, the condition will be part of the sale agreement, without any requirement that the purchaser request or negotiate for its inclusion, or that the seller wanted to be subject to it. Rather, the law requires the condition be considered included in the parties’ agreement unless by their express language, they can be taken to have turned their minds to the implied condition and explicitly, clearly, and directly agreed to exclude it.

[68] The objective determination of the intention of the parties, gleaned from the language they used in light of the factual matrix, is the goal of contractual interpretation: Sattva, at para. 57. But that determination must proceed on the basis that, in a sale by description, the parties are legislatively deemed to have the intention to include the statutory condition as to identity over and above any other obligations to each other they may have included or reflected in their agreement, unless they have explicitly excluded that condition. It is not enough that their language, in light of the factual matrix, indicates in some sense that the seller wanted to be responsible only in certain circumstances or to be subject only to limited obligations. The provision by the seller of a limited warranty, and disclaimer of all others, which was the case in Chabot, Gregorio, IPEX, and Haliburton could, viewed from one perspective, indicate an intention that the parties had defined exactly the limits of the seller’s obligations and the buyer’s entitlements. But viewed from the required perspective – one that privileges the SGA purposes – the seller in each case provided the limited warranty and the implied condition as to quality. The exculpatory language did not address the latter and the objective determination of the parties’ intentions could not lead to the conclusion that the implied condition was excluded.

[69] For the same reasons, having made a sale by description as the trial judge found, Earthco was statutorily deemed to have agreed to a condition that the goods it delivered corresponded to that description unless it expressly excluded that condition. The exclusionary clauses did not constitute an express agreement to exclude the s. 14 SGA condition as they failed the test of explicit, clear, and direct language.

DISPOSITION

[70] I would allow the appeal, set aside the judgment dismissing Pine Valley’s action against Earthco, and substitute a judgment that Earthco pay Pine Valley damages in the sum assessed by the trial judge, $350,386.23. If the parties are unable to agree on matters of pre-judgment interest and costs of the action, which the trial judge fixed at $52,500 inclusive of disbursements and taxes, they may make written submissions, not exceeding five pages each. Pine Valley’s submissions shall be delivered within ten days of the release of these reasons and Earthco’s within ten days of the receipt of Pine Valley’s.

[71] Pine Valley is entitled to costs of the appeal, fixed in the agreed upon amount of $12,500, inclusive of disbursements and applicable taxes.

Released: March 31, 2022 “G.R.S.” “B. Zarnett J.A.” “I agree. G.R. Strathy C.J.O.” “I agree. Janet Simmons J.A.”

Footnotes:

[1] There was ultimately no issue with the organic content of the topsoil.

[2] This email was sent to Furfari Paving, who later advised Earthco that Pine Valley was accepting the topsoil and the conditions stated in the email.

[3] In this case, there is no issue of course of dealing or usage.

[4] See para. 19 above.