Supreme Court of Canada **Earthco Soil Mixtures Inc.** — Appellant **v.** **Pine Valley Enterprises Inc.** — Respondent **— and —** **Canadian Chamber of Commerce** — Intervener --- **Indexed as:** Earthco Soil Mixtures Inc. v. Pine Valley Enterprises Inc. **2024 SCC 20** **File No.:** 40197. **2023:** October 17; **2024:** May 31. **Present:** Wagner C.J. and Côté, Rowe, Martin, Kasirer, Jamal and O'Bonsawin JJ. **on appeal from the court of appeal for ontario** --- **Reasons for Judgment:** (paras. 1 to 115)

Martin J. (Wagner C.J. and Rowe, Kasirer, Jamal and O'Bonsawin JJ. concurring) Dissenting Reasons: (paras. 116 to 185)

Côté J. > Note: This document is subject to editorial revision before its reproduction in final form in the Canada Supreme Court Reports. --- ## Headnote Sale of goods — Contracts — Interpretation — Exclusion clauses — Requirements to negative or vary statutory implied conditions — Provincial legislation providing for implied condition in contract for sale of goods by description that goods will correspond to description — Legislation allowing parties to negative or vary implied condition by express agreement — Exclusion clause in contract between buyer and seller providing that seller not liable for quality of material — Whether exclusion clause was express agreement to oust liability for breach of implied condition that goods must correspond with description — Sale of Goods Act, R.S.O. 1990, ss. 14, 53. --- ## Summary of Facts The buyer was hired to work on a municipal project to remediate flooding, which included the removal and replacement of topsoil for drainage. The buyer contacted the seller, a topsoil provider, to obtain topsoil with a specified composition. The seller provided the buyer with laboratory reports from different topsoil samples taken about six weeks prior, and warned against purchasing the topsoil without updated test results. However, the buyer had already missed project deadlines and urgently wanted delivery of the topsoil so as to avoid the imposition of liquidated damages. The buyer therefore waived its right to test the soil and insisted on immediate delivery. The buyer and seller agreed to add two exclusion clauses to the standard purchase order, which stated that the buyer had the right to test and approve the material before it was shipped, and that if the buyer waived those rights, the seller would not be responsible for the quality of the material once it left its facility. After the topsoil was delivered and placed on the project site, water ponding was noted. Testing revealed that there was substantially more clay in the topsoil than the test results had indicated, and the buyer had to remove and replace the topsoil. The buyer sued the seller for damages, alleging that it did not receive topsoil within the range of compositional properties that had been indicated in the test results. The trial judge dismissed the buyer's action. He found that the contract was for a sale of goods by description within the meaning of s. 14 of Ontario's Sale of Goods Act ("SGA"), which sets out an implied condition that goods must correspond with their description. He further found that the buyer did not get the topsoil it bargained for, because of the variation between the topsoil that was promised and the topsoil that was delivered. However, he found that the exclusion clauses were an express agreement, pursuant to s. 53 of the SGA, to contract out of the implied condition under s. 14 of the SGA, despite the fact that the exclusion clauses did not explicitly mention that they were to oust statutorily implied terms and conditions. The Court of Appeal held that the trial judge erred on three extricable questions of law, by: (1) failing to account for how the implied condition in s. 14 of the SGA relates to the goods' identity (or description) and not their quality; (2) failing to properly interpret the requirement for explicit, clear and direct language to exclude a statutory condition; and (3) considering the contract's factual matrix beyond its permissible use in interpreting the exclusion clauses. The Court of Appeal held that the term "quality" cannot include "identity" and that the reference in the exclusion clauses to "quality" was not a reference to the implied condition in s. 14 relating to the goods' identity. In the court's view, because the exclusion clauses did not contain words that explicitly, clearly and directly covered the identity of the topsoil, they were insufficient to oust liability under s. 14 of the SGA. The Court of Appeal allowed the appeal and substituted a judgment requiring the seller to pay damages. Held (Côté J. dissenting): The appeal should be allowed and the trial judge's judgment restored. --- ## Majority Reasons Per Wagner C.J. and Rowe, Martin, Kasirer, Jamal and O'Bonsawin JJ.: To be sufficient for the purposes of s. 53 of the SGA, an "express agreement" must be comprised of an agreement to negative or vary a statutorily implied right, duty or liability and such an agreement must be expressly set forth within the parties' contract. The determination as to what qualifies as an express agreement must also be informed by principles of contractual interpretation and the law concerning exclusion clauses, and the paramount consideration must be the objective intention of the parties. In the instant case, the trial judge made no error of law with respect to the exclusion clauses at issue. The objective meaning of the parties' express agreement is that the buyer accepted the risk that the topsoil would not meet the previously supplied specifications concerning its composition if it failed to test what it knew was an organic and changing substance. The law governing the sale of goods is subject to various legal rules from different sources. While subject to a host of statutory provisions in the SGA or other such statutes across the country, a sale is also an agreement that sits within the general common law of contracts and the SGA mandates that it be interpreted in conjunction with current contract law principles. Sale of goods statutes were never intended to be exhaustive or comprehensive codes; they ought not to be applied too rigidly or to the exclusion of the freedom of parties to contract within the general limits of the law. Statutory rules stemming from sale of goods legislation must be related to the law of contract as a whole and such legislation must be interpreted in light of the common law as it stands from time to time and in the present day. In particular, the principles in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, and Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69, which give priority to the parties' intentions, apply to the contracts subject to the SGA. The SGA provides statutory protections to contracting parties by implying various rights, duties and liabilities into contracts for the sale of goods, including conditions and warranties. When goods are sold by description, s. 14 of the SGA provides an implied condition that the goods correspond with their description. By deeming this to be a condition, the SGA provides that correspondence with description is fundamental to the purpose of a contract. When this implied condition is in play, it becomes very important to determine what aspects of the goods form part of the goods' description, which is a fact-specific determination. Not every statement made about the goods is a protected part of its description under s. 14: description is tied to the identity and only protects those terms which identify the subject-matter of the sale. The case law has distinguished between traits that go to the identity of the goods (which pertains to description), and those which go to the quality of the goods (which pertains to merchantability and fitness for purpose). The identity of a good should be limited to words whose purpose is to state or identify an essential part of the description of the goods. The question to be asked for the purpose of s. 14 is whether the buyer could fairly and reasonably refuse to accept the physical goods proffered to them on the ground that the failure of the goods to correspond with that part of what was said about them in the contract makes them goods of a different kind from those the buyer had agreed to buy. Despite the importance of implied statutory conditions, parties remain free to take their contracts outside the presumptive provisions of the SGA. Section 53 permits parties to vary or negative obligations imposed by the SGA, including by express agreement. To qualify under the "express agreement" branch of s. 53, there must be both an agreement to vary or negative a liability under a contract of sale, and that agreement must be express. An agreement will be express if made in distinct and explicit terms and not left to inference. The parties must have expressly and unambiguously used language that signals their intention to override the SGA. Despite the requirement for an express agreement, s. 53 does not require express language; there is no requirement for particular magic words. It cannot be said that s. 53 is only satisfied if parties who agreed to an exclusion clause use the words "condition" and "identity" to oust the implied condition of correspondence to description. Applicable case law mandates a shift away from a method of contractual interpretation dominated by technical rules of construction and requires that words be understood in their factual matrix, with the paramount goal of ascertaining the parties' objective intention. The "agreement" part of s. 53 is often the crux of the matter and it requires a meeting of the minds about what rights, duties or obligations are being changed and how they are being varied or negatived. The terms of that agreement must also be certain and mutually agreed upon. The existence, extent and meaning of the statutory term "agreement" will be determined by reference to the common law principles concerning the formation, interpretation and enforcement of contracts. In Sattva, the Court stated how agreements should be interpreted and reviewed, and explained how the jurisprudence has shifted towards a more flexible, practical, and common-sense approach with a view to ascertain the objective intention of the parties. When seeking the meaning of a document, the focus of the court is properly on what the parties objectively intended and what they reasonably understood their words to mean. The meaning of the words of a contract can be derived from reference to various contextual factors from its surrounding circumstances, which are often referred to as the factual matrix. Exclusion clauses, such as those under s. 53 of the SGA, are subject to their own set of legal rules because they raise distinct policy considerations. Tercon sets out three steps to help assess the enforceability of an exclusion clause. First, the court must determine whether an exclusion clause even applies in the circumstances, which necessarily depends on an assessment of the intention of the parties. It is at this step where a court should determine whether there is an express agreement between the parties that is sufficient to meet the requirements of s. 53. If the exclusion clause is found to be valid at the first step, the second step requires a court to consider whether the exclusion clause was unconscionable at the time the contract was made. Third, even if not unconscionable, a court may consider if there is some overriding public policy consideration that outweighs the strong public interest in the enforcement of contracts and if there is, the court may refuse to enforce the otherwise valid exclusion clause. The modern contractual interpretation principles from Sattva apply to contracts containing exclusion clauses, especially at the first step of the Tercon test. Sattva's direction to consider the surrounding circumstances when interpreting the terms of a contract means exclusion clauses must be analyzed in light of their purposes and commercial context. In the instant case, the exclusion clauses exempt the seller from any statutorily imposed liability under s. 14 of the SGA. The word "quality" in the exclusion clauses must be interpreted in a manner that is consistent with the surrounding circumstances. The buyer was a commercial purchaser with years of experience in buying large quantities of topsoil. Both parties were aware of the changing nature of topsoil and that the existing test results were dated. The parties were free to negotiate and allocate the risk of not testing the topsoil. The buyer was in a rush to receive the topsoil, given the looming threat of liquidated damages. The buyer deliberately assumed the risk through its own conscious strategic decision. The parties came to an express agreement about the allocation of risk, by using direct, clear and express language in their contract, which demonstrated that their objective intention was for the buyer to waive its right to pursue the seller for any liability relating to the topsoil. The trial judge made no error in making such findings. --- ## Dissenting Reasons Per Côté J. (dissenting): The appeal should be dismissed. The exclusion clauses are not an "express agreement" within the meaning of s. 53 of the SGA to exclude the seller's liability for a breach of the implied condition in s. 14 that goods sold by description will correspond with their description. An exclusion clause is not an express agreement under s. 53 with regard to a particular implied condition if it requires deviating from the text of the contract to determine what the surrounding circumstances would deem the parties to have written, instead of interpreting the meaning of the words actually used by the parties. The clear and direct language chosen by the parties in the exclusion clauses limited the exclusion of liability to defects in quality within the meaning of s. 15 of the SGA, and could not be expanded to cover any defects relating to the identity of the soil. The SGA protects buyers by implying certain conditions into each contract for the sale of goods, such as the statutory conditions that the goods will correspond with their description (s. 14), will be fit for their purpose (s. 15 para. 1), and will be of merchantable quality (s. 15 para. 2). Each of these statutory conditions is distinct, and it is important not to conflate them. Section 14 sets out an implied condition that the goods delivered under a contract for the sale of goods by description will correspond with their description. Establishing a breach of s. 14 involves a two-step analysis. It is first necessary to determine whether the contract is a sale by description within the meaning of s. 14. If so, it is then necessary to determine whether the goods delivered corresponded with their agreed-upon description. This is a fact-specific determination that turns on whether a statement describing the goods being sold was made and reasonably relied upon. Section 14 is to be distinguished from s. 15, which is broadly directed at the quality of goods. In particular, s. 15 para. 1 sets out an implied condition of fitness for purpose, and s. 15 para. 2 sets out an implied condition of merchantable quality. The SGA does not restrict the parties' common law freedom to shape their agreement as they see fit. They are free to contract out of implied terms, and s. 53 precisely delineates the manner in which they may demonstrate their intention to do so. One route for ousting liability arising in the context of the SGA is that the parties are free to structure their own contract as they see fit by express agreement. As set out by the Court in Hunter Engineering Co. v. Syncrude Canada Ltd., [1989] 1 S.C.R. 426, clear, direct, and unambiguous language is required to oust a statutory protection by express agreement. Any intention to exclude liabilities arising from the SGA must be expressed in language inconsistent with the specific content of the terms implied by the statute. Reference to a different legal duty will not suffice. Parties are not required to use magic words; rather, they must use language that is clearly and directly aimed at excluding the content of the conditions they purport to vary. Where only a particular duty is excluded by the parties' language, all other duties remain. Should the parties fail to use language that unambiguously encompasses the implied condition or warranty in question, no express agreement can be said to have been concluded. An attempted exclusion of liability may fail because the words used by the parties are directed at excluding liability with respect to the quality of the goods when the defect is instead related to their description. In the sale of goods context, the exercise of contractual interpretation must proceed on the assumption that the parties objectively intended to accept the rights, duties, and liabilities arising under the SGA, unless the parties have clearly expressed their intention otherwise. Such an approach reflects the policy choice, enshrined in s. 53, to give primacy to legislative purposes, unless the parties have clearly expressed their intention for a different private ordering of their rights and obligations. The SGA represents the legislature's understanding of commercial efficacy or common sense in the sale of goods context, and its provisions are designed to promote certainty and predictability. There is nothing unfair or unrealistic in assuming that the parties knew their respective legal positions in entering into the contract. Given that the parties are taken to know their legal positions in entering into a contract of sale, they must also be presumed to intend the legal consequences of the words they use. Although interpreting the words used in an exclusion clause may require reference to the whole contract or the surrounding circumstances, the legislature has indicated that the rights, duties, and liabilities arising under the SGA must be considered a vital part of the setting in which parties contract. The exercise of contractual interpretation cannot be conducted in a manner that disregards the law governing the contract. In the instant case, it was open to the trial judge to find that the parties' contract was a sale by description, and it was also open to the trial judge to find that the description of the topsoil for the purposes of s. 14 of the SGA included the composition established in the test results. However, the fact that the trial judge found that the composition of the topsoil went to the identity of the goods, while it could also be relevant to the fitness of the topsoil for a particular purpose, does not mean that the parties objectively intended to shield the seller from any and all liability. The parties chose to put down their agreement in writing. The court's task is to determine what they meant by agreeing to exclude liability in relation to the "quality of the material". The exclusion clauses did not actually state that the seller would not be liable for "any" defects, including defects in the composition of the topsoil. Rather, the parties agreed that the seller would not be "responsible for the quality of the material". The ordinary and grammatical meaning of these words relates to the fitness for purpose of a good, within the meaning of s. 15 para. 1 of the SGA. The express agreement excludes liability only in relation to quality. In the present circumstances, the meaning of the word "quality" cannot be expanded to cover any defects relating to the identity or description of the topsoil; therefore, the language of the exclusion clauses does not express an objective intention to exclude the condition of correspondence with description in s. 14 of the SGA. --- ## Cases Cited ### By Martin J. Applied: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633; Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69; considered: Hunter Engineering Co. v. Syncrude Canada Ltd., [1989] 1 S.C.R. 426; Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23; referred to: Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21, [2006] 1 S.C.R. 744; Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235; Corner Brook (City) v. Bailey, 2021 SCC 29, [2021] 2 S.C.R. 540; Canada (Director of Investigation and Research) v. Southam Inc., [1997] 1 S.C.R. 748; Ashington Piggeries Ltd. v. Christopher Hill Ltd., [1972] A.C. 441; Bakker v. Bowness Auto Parts Co. Ltd. (1976), 68 D.L.R. (3d) 173; Bailey v. Croft (1931), 40 Man. R. 146; Rahtjen v. Stern GMC Trucks (1969) Ltd. (1976), 66 D.L.R. (3d) 566; Coast Hotels Ltd. v. Royal Doulton Canada Ltd., 2000 BCSC 857, 76 B.C.L.R. (3d) 341; Joubarne v. Loodu, 2005 BCSC 1340; Thoms v. Louisville Sales & Service Inc., 2006 SKQB 447, 286 Sask. R. 90; Baron v. Caragata, 2004 SKQB 43, 245 Sask. R. 208; Total Petroleum (N.A.) Ltd. v. AMF Tuboscope Inc. (1987), 54 Alta. L.R. (2d) 13; Palin v. Assie Industries Ltd., 2003 SKQB 57, 230 Sask. R. 234; Clayton v. North Shore Driving School, 2017 BCPC 198, 70 B.L.R. (5th) 49; Koubi v. Mazda Canada Inc., 2012 BCCA 310, 352 D.L.R. (4th) 245; Armak Chemicals Ltd. v. Canadian National Railway Co. (1991), 3 O.R. (3d) 1; Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27; Schnarr v. Blue Mountain Resorts Ltd., 2018 ONCA 313, 140 O.R. (3d) 241; British Columbia (Attorney General) v. Le, 2023 BCCA 200, 482 D.L.R. (4th) 20; Bank of England v. Vagliano Brothers, [1891] A.C. 107; Investors Compensation Scheme Ltd. v. West Bromwich Building Society, [1998] 1 All E.R. 98; Guarantee Co. of North America v. Gordon Capital Corp., [1999] 3 S.C.R. 423; Dow Chemical Canada ULC v. NOVA Chemicals Corporation, 2020 ABCA 320, 17 Alta. L.R. (7th) 83; Reardon Smith Line Ltd. v. Hansen-Tangen, [1976] 3 All E.R. 570; Chabot v. Ford Motor Co. of Canada Ltd. (1982), 39 O.R. (2d) 162; Gregorio v. Intrans-Corp. (1994), 18 O.R. (3d) 527; Rosenberg v. Securtek Monitoring Solutions Inc., 2021 MBCA 100, 465 D.L.R. (4th) 201; Co-operators Life Insurance Co. v. Gibbens, 2009 SCC 59, [2009] 3 S.C.R. 605; National Bank of Greece (Canada) v. Katsikonouris, [1990] 2 S.C.R. 1029; Moldenhauer v. Alberta Powersports Inc., 2009 ABPC 118; Conners v. McMillan, 2020 BCPC 230. ### By Côté J. (dissenting) Hunter Engineering Co. v. Syncrude Canada Ltd., [1989] 1 S.C.R. 426; Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69; Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633; Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235; Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32, [2017] 1 S.C.R. 688; Bank of England v. Vagliano Brothers, [1891] A.C. 107; Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27; Bell ExpressVu Limited Partnership v. Rex, 2002 SCC 42, [2002] 2 S.C.R. 559; Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54, [2005] 2 S.C.R. 601; Celgene Corp. v. Canada (Attorney General), 2011 SCC 1, [2011] 1 S.C.R. 3; Ashington Piggeries Ltd. v. Christopher Hill Ltd., [1972] A.C. 441; Bakker v. Bowness Auto Parts Co. Ltd. (1976), 68 D.L.R. (3d) 173; Printing and Numerical Registering Co. v. Sampson (1875), L.R. 19 Eq. 462; Produce Brokers Co., Ltd. v. Olympia Oil and Cake Co., Ltd., [1916] 1 A.C. 314; Continental Tyre and Rubber Co. Ltd. v. Trunk Trailer Co. Ltd., 1985 S.C. 163; McCutcheon v. David MacBrayne Ltd., 1964 S.C. (H.L.) 28; Attorney General of Quebec v. Carrières Ste-Thérèse Ltée, [1985] 1 S.C.R. 831; Canada (Attorney General) v. JTI-Macdonald Corp., 2007 SCC 30, [2007] 2 S.C.R. 610; R. v. Morrison, 2019 SCC 15, [2019] 2 S.C.R. 3; Wallis, Son & Wells v. Pratt & Haynes, [1911] A.C. 394; Advance Rumely Thresher Co. v. Lester, [1927] 4 D.L.R. 51; McNichol v. Dominion Motors Ltd. (1930), 24 Alta. L.R. 441; Gregorio v. Intrans-Corp. (1994), 18 O.R. (3d) 527; Cork v. Greavette Boats Ltd., [1940] O.R. 352; Murray v. Sperry Rand Corp. (1979), 23 O.R. (2d) 456; Chabot v. Ford Motor Co. of Canada Ltd. (1982), 39 O.R. (2d) 162; Keefer Laundry Ltd. v. Pellerin Milnor Corp., 2008 BCSC 1119, 49 B.L.R. (4th) 222; Kobelt Manufacturing Co. v. Pacific Rim Engineered Products (1987) Ltd., 2011 BCSC 224, 84 B.L.R. (4th) 189; IPEX Inc. v. Lubrizol Advanced Materials Canada Inc., 2012 ONSC 2717, 4 B.L.R. (5th) 148; Brantford Engineering and Construction Ltd. v. Underground Specialties Cambridge Inc., 2014 ONSC 4726, 33 B.L.R. (5th) 239; Haliburton Forest & Wildlife Reserve Ltd. v. Toromont Industries Ltd., 2016 ONSC 3767; Herbert Construction Company Ltd. v. Carter Holt Harvey Ltd., [2013] NZHC 780; Moldenhauer v. Alberta Powersports Inc., 2009 ABPC 118; Conners v. McMillan, 2020 BCPC 230; Corner Brook (City) v. Bailey, 2021 SCC 29, [2021] 2 S.C.R. 540; Resolute FP Canada Inc. v. Ontario (Attorney General), 2019 SCC 60, [2019] 4 S.C.R. 394; Elias v. Western Financial Group Inc., 2017 MBCA 110, 417 D.L.R. (4th) 695; Luxor (Eastbourne), Ld. v. Cooper, [1941] A.C. 108; Photo Production Ltd. v. Securicor Transport Ltd., [1980] A.C. 827; Triple Point Technology Inc. v. PTT Public Co. Ltd., [2021] UKSC 29, [2021] A.C. 1148; Stocznia Gdynia S.A. v. Gearbulk Holdings Ltd., [2009] EWCA Civ 75, [2010] Q.B. 27; Whitecap Leisure Ltd. v. John H. Rundle Ltd., [2008] EWCA Civ 429, [2008] 2 Lloyd's Rep. 216; Seadrill Management Services Ltd. v. OAO Gazprom, [2010] EWCA Civ 691, [2011] 1 All E.R. (Comm.) 1077; Eli Lilly & Co. v. Novopharm Ltd., [1998] 2 S.C.R. 129; Leggett v. Taylor (1965), 50 D.L.R. (2d) 516; Rosenberg v. Securtek Monitoring Solutions Inc., 2021 MBCA 100, 465 D.L.R. (4th) 201; Ecoasis Resort and Golf LLP v. Bear Mountain Resort & Spa Ltd., 2021 BCCA 285, 53 B.C.L.R. (6th) 343; Mann v. Grewal, 2023 BCCA 88; Arnold v. Britton, [2015] UKSC 36, [2015] A.C. 1619. --- ## Statutes and Regulations Cited Business Practices and Consumer Protection Act, S.B.C. 2004, c. 2, s. 3. Consumer Protection Act, R.S.A. 2000, c. C-26.3, s. 2(1). Consumer Protection Act, 2002, S.O. 2002, c. 30, Sch. A, s. 9(3). Sale of Goods Act, C.C.S.M., c. S10, ss. 15, 16(a), (b). Sale of Goods Act, R.S.A. 2000, c. S-2, ss. 15, 16(2), (4). Sale of Goods Act, R.S.B.C. 1996, c. 410, ss. 17(1), 18(a), (b). Sale of Goods Act, R.S.N.B. 2016, c. 110, ss. 19, 20(a), (b). Sale of Goods Act, R.S.N.L. 1990, c. S-6, ss. 15(1), 16(a), (c). Sale of Goods Act, R.S.N.S. 1989, c. 408, ss. 16, 17(a), (b). Sale of Goods Act, R.S.N.W.T. 1988, c. S-2, ss. 17(a), 18(1)(a), (b). Sale of Goods Act, R.S.N.W.T. (Nu.) 1988, c. S-2, ss. 17(a), 18(1)(a), (b). Sale of Goods Act, R.S.O. 1990, c. S.1, ss. 1(1) "quality of goods""warranty", 12(3), 13, 14, 15, 16(1), 18, 20(2), 21, 27, 28(1), (5), 30, 31, 32, 33(2), 35, 48(3), 49(3), 51(3), 53, 57(1). Sale of Goods Act, R.S.P.E.I. 1988, c. S-1, ss. 15, 16(a), (b). Sale of Goods Act, R.S.S. 1978, c. S-1, ss. 15, 16 paras. 1 and 2. Sale of Goods Act, R.S.Y. 2002, c. 198, ss. 14, 15(a), (b). Sale of Goods Act, 1893 (U.K.), 56 & 57 Vict., c. 71. --- ## Authors Cited Twigg-Flesner, Christian, Rick Canavan and Hector MacQueen. 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L.J. 7. McGuinness, Kevin P. Sale & Supply of Goods, 2nd ed. Markham, Ont.: LexisNexis, 2010. McKendrick, Ewan. Goode and McKendrick on Commercial Law, 6th ed. London: LexisNexis, 2020. McKendrick, Ewan. "Sale of Goods", in Peter Birks, ed., English Private Law, vol. II. New York: Oxford University Press, 2000, 223. O'Byrne, Shannon. "Assessing Exclusion Clauses: The Supreme Court of Canada's Three Issue Framework in Tercon Contractors Ltd v British Columbia (Transportation and Highways)" (2012), 35 Dal. L.J. 215. Peel, Edwin. "Whither Contra Proferentem?", in Andrew Burrows and Edwin Peel, eds., Contract Terms. New York: Oxford University Press, 2007, 53. Pike, Christoph. "Now We're Talking: Revisiting the Canadian Approach to No Oral Modification Clauses" (2021), 47:1 Queen's L.J. 1. Sutton, K. C. T. "The Reform of the Law of Sales" (1969), 7 Alta. L. Rev. 130. Waddams, S. M. The Law of Contracts, 8th ed. Toronto: Canada Law Books, 2022. Wilmot-Smith, Frederick. "Express and Implied Terms" (2023), 43 Oxford J. Leg. Stud. 54. --- ## Disposition APPEAL from a judgment of the Ontario Court of Appeal (Strathy C.J. and Simmons and Zarnett JJ.A.), 2022 ONCA 265, 161 O.R. (3d) 103, 468 D.L.R. (4th) 78, 26 B.L.R. (6th) 165, [2022] O.J. No. 1497 (Lexis), 2022 CarswellOnt 4054 (WL), setting aside a decision of Nakatsuru J., 2020 ONSC 601, [2020] O.J. No. 405 (Lexis), 2020 CarswellOnt 1113 (WL). Appeal allowed, Côté J. dissenting. Mark Klaiman and Ian Klaiman, for the appellant. Vito S. Scalisi and Dylan A. S. Bal, for the respondent. Jeremy Opolsky and Lauren Nickerson, for the intervener. --- ## Reasons for Judgment The judgment of Wagner C.J. and Rowe, Martin, Kasirer, Jamal and O'Bonsawin JJ. was delivered by Martin J. — ### Table of Contents | Section | Paragraph | |---------|-----------| | I. Introduction | 1 | | II. Factual Background | 4 | | III. Judicial History | 13 | | A. Ontario Superior Court of Justice, 2020 ONSC 601 | 13 | | B. Court of Appeal for Ontario, 2022 ONCA 265, 161 O.R. (3d) 103 | 22 | | IV. Issues | 26 | | V. Analysis | 27 | | A. The Applicable Standard of Review | 27 | | B. The Sale of Goods Act | 34 | | C. Section 53 and Express Agreements | 45 | | (1) Section 53 of the Sale of Goods Act | 50 | | (2) The Modern Principles of Contractual Interpretation | 61 | | (3) The Legal Treatment of Exclusion Clauses | 66 | | (4) Explicit, Clear and Direct Language as Applied to Statutory Conditions and Identity | 74 | | D. Summary of the Proper Approach to Interpreting Exclusion Clauses Under Section 53 of the Sale of Goods Act | 93 | | E. Clauses 6 and 7 Exempt Earthco From Liability Under Section 14 | 100 | | VI. Disposition | 115 | --- ### I. Introduction [ 1 ] This appeal concerns a contracting party's ability to contract out of a statutorily implied condition under the Sale of Goods Act, R.S.O. 1990, c. S.1 ("SGA"). [^1] The buyer, Pine Valley Enterprises Inc., claims that the purchased topsoil involved a sale by description and seeks damages because the soil did not correspond to that description. The seller, Earthco Soil Mixtures Inc., says there was no breach of any statutory condition, arguing that the goods not only complied with their description, but also that the parties specifically excluded any such obligation by express written agreement. The SGA, like other such statutes across the country, provides that parties may contract out of any right, duty or liability that would otherwise arise by implication of law in a contract of sale (s. 53). The parties' contract contained a clause stipulating that if the buyer chose to waive its right to test the goods, then the seller would "not be responsible for the quality of the material" once it left its facilities (A.R., at p. 201). Because the buyer chose to waive its right to test and approve the goods before they were shipped, the seller claims this clause operates to exclude any statutory condition that the goods must meet certain compositional specifications. [ 2 ] The trial judge dismissed the buyer's claim, finding that, while there was a breach of the implied condition in s. 14, the exclusion clauses in the parties' contract constituted an express agreement under s. 53 of the SGA to contract out of that implied condition. The Court of Appeal for Ontario disagreed and held that the exclusion clauses did not satisfy the requirements of s. 53 of the SGA because they were not explicit, clear and direct enough to oust the implied condition under s. 14 of the SGA. [ 3 ] I would allow the appeal and restore the trial judge's judgment. The trial judge made no error of law. Applying modern contractual interpretation principles, the objective meaning of the parties' express agreement is that the buyer accepted the risk that the topsoil would not meet the previously supplied specifications concerning its composition if it failed to test what it knew was an organic and changing substance. --- ### II. Factual Background [ 4 ] Pine Valley Enterprises Inc. ("Pine Valley") was hired by the City of Mississauga to work on a municipal project to remediate flooding in a residential area. This project included the removal and replacement of topsoil for drainage purposes. Pine Valley needed to purchase and install up to 4,000 metric tons of topsoil. [ 5 ] Pine Valley contacted Earthco Soil Mixtures Inc. ("Earthco"), a topsoil provider, to obtain topsoil with a specific composition. The technical specifications required R Topsoil — a topsoil with specific amounts of sand, silt and clay. To meet these specifications, the topsoil needed to be between 50-80% sand, 0-40% silt, and 0-30% clay (A.R., at p. 224; hereinafter referred to as the "Specifications"). [ 6 ] Earthco provided Pine Valley with laboratory reports from different topsoil samples. These reports indicated that the existing topsoil had the composition required by the Specifications at the time of testing. However, the tests were conducted about six weeks before the parties entered into their contract, and Earthco warned Pine Valley about purchasing the topsoil without requesting updated test results. [ 7 ] Pine Valley had already missed project deadlines and urgently wanted delivery of the topsoil so as to avoid the imposition of liquidated damages. Pine Valley therefore waived its right to test the soil and insisted on immediate delivery. [ 8 ] The parties agreed to add two clauses — clauses 6 and 7 — to the standard purchase order. These clauses stated: > 6. Pine Valley has the right to test and approve the material before it is shipped. Pine Valley Enterprises and their clients have agreed to the test results that have been submitted. If Pine Valley waives their right to test the material before shipping, the material will be invoiced as described.

7. If Pine Valley Enterprises waives their right to come and test the material before it is shipped, Earthco Soil Mixtures Inc. is not responsible for the quality of the material that is shipped (A.R., at p. 201). [ 9 ] After the topsoil was delivered and placed on the project site, water ponding was noted. Testing revealed that there was substantially more clay in the topsoil than the test results had indicated. The delivered topsoil had, on average, approximately twice the amount of clay (58%) compared to what the Specifications required. Pine Valley had to remove and replace the topsoil. [ 10 ] Pine Valley sued Earthco for damages, alleging that it did not receive topsoil within the range of compositional properties that had been indicated in the test results. Pine Valley claimed $534,617.90. [ 11 ] Earthco defended on the basis that it sold goods corresponding to their description, i.e., R Topsoil. Earthco also argued that, in any event, the exclusion clauses took the transaction outside the statutory regime under the SGA. [ 12 ] The intervener, the Canadian Chamber of Commerce, was granted leave to intervene to address the general commercial law issues in this appeal. --- ### III. Judicial History #### A. Ontario Superior Court of Justice, 2020 ONSC 601 [ 13 ] The trial judge, Nakatsuru J., dismissed Pine Valley's action. [ 14 ] On the question of whether there was a sale by description, the trial judge found that there was. Pine Valley had approached Earthco with specific characteristics it needed the topsoil to have. The characteristics were identified in the test results shared by Earthco. Both parties understood that the contract was for topsoil conforming to the Specifications. [ 15 ] The trial judge further found that the compositional range of the topsoil as set out in the test results was part of the description of the goods. The key phrase he used was that Earthco was promising to sell the R Topsoil with "the qualities set out in [the] test results" (A.R., at p. 265, para. 100). [ 16 ] The trial judge found that the delivered topsoil did not correspond to the Specifications: there was "a very significant difference in the composition of the soil promised versus the soil delivered" (A.R., at p. 265, para. 102). This established a breach of the implied condition in s. 14 of the SGA. [ 17 ] Turning to the question of whether the exclusion clauses constituted an "express agreement" under s. 53 of the SGA, the trial judge noted that the SGA requires "express agreement" but does not require "particular magic words" (A.R., at p. 267, para. 112). The trial judge found that the exclusion clauses, when read in their surrounding circumstances, were clear and unambiguous and served to negative Earthco's liability under s. 14. [ 18 ] Applying these findings of fact to the core issue, first, the trial judge found this was a sale by description within the meaning of s. 14 of the SGA. Earthco was promising to sell the R Topsoil with "the qualities set out in [the] test results" and not simply any soil with any composition (para. 100). The trial judge also found it was clear Pine Valley did not get the soil it bargained for, because there was a significant compositional variation between the soil that was promised and the soil that was delivered (para. 103). Thus, there was a breach of the implied condition under s. 14 of the SGA that the goods must correspond with their description (para. 103). [ 19 ] Turning to s. 53 of the SGA, the trial judge found that in order to oust a statutory entitlement under the SGA, contractual language needs to "be clear and unambiguous" (para. 112), as s. 53 requires an "express agreement" to contract out of implied terms. In this case, the other statutorily available methods under s. 53 for contracting out of implied terms, namely by the course of dealing between the parties or by usage, were not applicable. Despite the fact that the Contract did not explicitly mention statutorily imposed conditions or terms, relying on the surrounding circumstances of the Contract's formation, the trial judge found that clauses 6 and 7 of the Contract were nevertheless clear and unambiguous and served to negative Earthco's liability under s. 14. [ 20 ] The trial judge based his conclusion on several findings. First, Pine Valley was a commercial purchaser with significant expertise and years of experience purchasing large quantities of topsoil. Second, both parties knew that soil composition changes over time and that the soil being sold was organic. Third, both parties knew that the existing test results were dated and that the soil's composition could have changed. Fourth, Earthco warned Pine Valley to obtain updated test results. Fifth, Pine Valley was in a rush due to the looming threat of liquidated damages. Sixth, Pine Valley made a deliberate decision to not test the soil prior to delivery. The trial judge concluded that the parties came to an express agreement about the allocation of risk, by using "direct, clear and express language in their contract" (para. 118). The objective intention of the parties was for Pine Valley to waive its right to pursue Earthco for any liability relating to the composition of the topsoil. [ 21 ] Thus, the trial judge found that, pursuant to s. 53 of the SGA, the parties had contracted out of the implied condition under s. 14 of the SGA. #### B. Court of Appeal for Ontario, 2022 ONCA 265, 161 O.R. (3d) 103 [ 22 ] The Court of Appeal allowed the appeal. It found that the trial judge made three extricable errors of law. [ 23 ] First, the Court of Appeal found that the trial judge erred in failing to distinguish between "identity" (relevant to s. 14) and "quality" (relevant to s. 15) of the goods. The court reasoned that "quality" and "identity" are legally distinct concepts and the exclusion clauses, which referred only to "quality", could not serve to exclude liability for a breach of s. 14, which relates to description and identity. [ 24 ] Second, the Court of Appeal found that the trial judge failed to apply the requirement that language excluding statutory conditions be "explicit, clear and direct." In the court's view, parties cannot use the surrounding circumstances of a contract's formation to expand the meaning of the language of an exclusion clause where the language chosen does not refer to the subject matter of the implied condition being excluded. [ 25 ] Third, the court found that the trial judge improperly used the factual matrix. The Court of Appeal substituted a judgment requiring Earthco to pay Pine Valley $444,564.46 in damages. --- ### IV. Issues [ 26 ] The central issue in this appeal is whether the exclusion clauses constitute an "express agreement" within the meaning of s. 53 of the SGA to oust the seller's liability for breach of the implied condition in s. 14 of the SGA. The resolution of this question requires me to address two sub-issues: (1) the applicable standard of review; and (2) the proper approach to interpreting exclusion clauses under s. 53 of the SGA. --- ### V. Analysis #### A. The Applicable Standard of Review [ 27 ] As this court held in Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, the standard of review for questions of law on appeal is correctness, while findings of fact and mixed questions of fact and law are reviewed on the standard of palpable and overriding error. [ 28 ] The Court of Appeal found that the trial judge made three extricable errors of law. Whether the trial judge erred is a question of law that this Court reviews on a correctness standard. [ 29 ] The interpretation of a contract involves questions of mixed fact and law. In Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, the Court confirmed that the interpretation of a contract is generally a question of mixed fact and law, with the consequence that appellate courts should defer to the interpretation of a contract by a trial judge in most circumstances. [ 30 ] An exception exists for extricable questions of law, which attract correctness review. However, extricable questions of law are narrow in scope: "[e]xtricable questions of law 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" (Sattva, at para. 53, citing Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32, [2017] 1 S.C.R. 688, at para. 45). [ 31 ] The Court of Appeal identified three purported errors of law by the trial judge. I will address each in turn, though I ultimately find that the trial judge made no extricable errors of law and that the Court of Appeal erred in overturning the trial judge's decision. [ 32 ] This being said, the Court of Appeal did correctly state certain legal propositions governing the interpretation of exclusion clauses under s. 53 of the SGA. Specifically, it correctly stated that: (1) "quality" and "description" are distinct concepts under the SGA; (2) there must be an express agreement to oust the implied condition in s. 14 of the SGA; and (3) in order to oust a statutory implied condition, the parties must use language that is sufficiently express and directed towards the statutory protection being excluded. [ 33 ] However, the Court of Appeal erred by transforming these propositions into rigid rules. In my view, the Court of Appeal gave insufficient regard to the modern approach to contractual interpretation, which focuses on the objective intention of the parties based on the factual matrix. This led the Court of Appeal to improperly replace the trial judge's factual determinations with its own. #### B. The Sale of Goods Act [ 34 ] In understanding the SGA regime, it is necessary to situate the SGA within the broader context of the general law of contract. The SGA, like other sale of goods legislation in Canada, was enacted to provide a statutory regime for contracts of sale that promotes certainty and efficiency in commercial transactions. The SGA provides a series of implied terms — conditions and warranties — that apply to contracts for the sale of goods unless the parties expressly agree otherwise. These implied terms protect buyers from certain risks that they may not have considered or been able to bargain for. The SGA thus represents a policy choice to impose certain default rules, which parties are free to modify by express agreement. [ 35 ] This default rule structure is evidenced by s. 53 of the SGA, which 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. [ 36 ] The SGA was never intended to be a comprehensive or exhaustive code governing all aspects of contracts for the sale of goods. Rather, it was intended to codify and supplement the common law of contract as it existed at the time of enactment. Section 57(1) of the SGA makes this clear, providing that "the rules of the common law, including the law merchant, except in so far as they are inconsistent with the express provisions of this Act . . . continue to apply to contracts for the sale of goods." [ 37 ] This means that the SGA must be interpreted in light of the common law as it stands from time to time and in the present day. Courts should not interpret the SGA in a way that is frozen in time or that divorces the statute from the common law principles that continue to govern contracts for the sale of goods. [ 38 ] Of particular importance is s. 14 of the SGA, which 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. [ 39 ] The implied condition in s. 14 is a condition, as opposed to a warranty, which means that a breach of this condition entitles the buyer to reject the goods and treat the contract as repudiated. This distinguishes it from conditions of merchantability and fitness for purpose under s. 15 of the SGA, which are generally directed at the quality of goods. [ 40 ] The distinction between "description" (governed by s. 14) and "quality" (governed by s. 15) is important for two reasons. First, it determines whether a breach of the implied term gives rise to a right to reject the goods (a condition) or merely a right to damages (a warranty). Second, it determines what language is needed to oust the implied term under s. 53. [ 41 ] However, this distinction should not be applied too rigidly. The concepts of "description" and "quality" are not always easy to distinguish in practice, and the courts have recognized that goods may have characteristics that relate to both their identity (description) and their quality. [ 42 ] The case law has generally held that a characteristic goes to the "description" of goods if it identifies the subject-matter of the sale — i.e., if it is an essential part of the description that identifies what the buyer agreed to buy. By contrast, a characteristic goes to the "quality" of the goods if it relates to the fitness of the goods for a particular purpose or their merchantability. [ 43 ] In this case, the trial judge found that the compositional range of the topsoil, as set out in the test results, was part of the description of the goods. The Court of Appeal did not disturb this finding, and I see no reason to do so. The Specifications identified the essential characteristics of the topsoil that Pine Valley needed, and the test results represented the parties' understanding of whether the topsoil met those Specifications. The topsoil's composition went to its identity — what kind of topsoil it was — and not merely to its quality or fitness for purpose. [ 44 ] Against this backdrop, the central question is whether the exclusion clauses in the parties' contract were sufficient to oust the implied condition in s. 14 of the SGA under s. 53. #### C. Section 53 and Express Agreements [ 45 ] Section 53 of the SGA provides that implied rights, duties and liabilities arising under a contract of sale may be negatived or varied by "express agreement." The question of what constitutes an "express agreement" for the purposes of s. 53 is at the heart of this appeal. [ 46 ] The courts in Canada and England have generally held that, to oust a statutory implied condition, the parties must use language that is clear, direct, and unambiguous in its intent to exclude the specific statutory condition at issue. However, the precise requirements for what constitutes sufficient "express agreement" under s. 53 have been a source of some confusion in the case law. [ 47 ] I will address this question by first examining the text and purpose of s. 53, and then considering how modern contractual interpretation principles and the legal treatment of exclusion clauses inform the analysis. [ 48 ] Two questions are at the heart of the analysis. First, what does s. 53 require of an "express agreement"? Second, how should that "express agreement" be interpreted? [ 49 ] The answers to these questions are interrelated. They both require careful attention to the text of the statute, the purpose of the statutory protections being excluded, and the objective intention of the parties, as revealed by the contract's language and surrounding circumstances. ##### (1) Section 53 of the Sale of Goods Act [ 50 ] The text of s. 53 is straightforward: it allows parties to negative or vary rights, duties and liabilities that would otherwise arise by implication of law under a contract of sale. It specifies three ways in which this can be done: (1) by express agreement; (2) by the course of dealing between the parties; or (3) by usage. In this case, only the first route — express agreement — is relevant. [ 51 ] The word "express" in s. 53 qualifies the word "agreement." It tells us how the agreement must be made, not what it must say. An agreement is express if it is stated in explicit terms, as opposed to being implied or left to inference. [ 52 ] This distinction between express and implied agreements is fundamental to contract law. An implied agreement is one that is inferred from the conduct of the parties or the surrounding circumstances. An express agreement is one that is stated in direct and explicit terms, without relying on inference. [ 53 ] However, the requirement that an agreement be express does not mean that the parties must use specific or technical language. As the trial judge correctly noted, the SGA does not require particular "magic words." What is required is that the agreement clearly and directly manifests the parties' intention to oust or vary the implied statutory term. [ 54 ] To qualify under the "express agreement" branch of s. 53, there must be both an agreement to vary or negative a right, duty or liability under a contract of sale, and that agreement must be express. These two elements, though referenced together as part of a composite phrase, are conceptually distinct and necessarily involve different considerations. [ 55 ] Some confusion has arisen about what it means for an agreement to be "express" under s. 53. Some think "express" speaks to specific language that must be used to remove the parties from the SGA. I do not think that is the correct approach. The term "express" qualifies the word "agreement" and is directed to how that agreement must be made. Express does not define what the agreement must say or the required level of clarity of specific contractual clauses. Because s. 53 requires an "express agreement", and not the use of "express language", it does not constitute, let alone call for, a qualitative requirement about the specificity of language that is needed to vary or negative an otherwise applicable legal liability. While s. 53 insists that the agreement must be express, it imposes no prerequisite about the precision of the words used to manifest such an agreement. The clarity of the language will, however, guide the interpretation of the agreement. [ 56 ] This understanding is confirmed by the structure and purpose of the SGA. The SGA was enacted to provide certainty and efficiency in commercial transactions by implying certain default terms into contracts for the sale of goods. Section 53 allows parties to depart from these default terms if they choose to do so. The purpose of s. 53 is to protect the freedom of parties to contract and to allow them to allocate risks as they see fit, while ensuring that departures from the statutory regime are intentional and not inadvertent. [ 57 ] If s. 53 required the use of specific or technical language to oust implied statutory conditions, it would impose a significant burden on commercial parties and would undermine the freedom of contract that is fundamental to commercial law. The SGA's purpose is to promote certainty and efficiency in commercial transactions, not to impose formalistic requirements that trap commercial parties into unintended contractual terms. [ 58 ] This interpretation is also consistent with the modern approach to contractual interpretation, which focuses on the objective intention of the parties rather than the technical meaning of specific words. As I will explain below, modern contractual interpretation requires courts to consider the language of a contract in light of its factual matrix and to ascertain the parties' objective intention from the contract as a whole. [ 59 ] The requirement that an agreement be "express" does not, therefore, require the use of specific or technical language. Rather, it requires that the parties' intention to oust or vary the implied statutory term be clearly and directly stated in the contract, without relying on inference or implication. [ 60 ] In my view, this is the correct interpretation of s. 53. It respects the text of the statute and its purpose, and it is consistent with the modern approach to contractual interpretation that this Court has endorsed in Sattva and other cases. ##### (2) The Modern Principles of Contractual Interpretation [ 61 ] The modern approach to contractual interpretation was set out by this Court in Sattva. In that case, the Court confirmed that the interpretation of a contract is a question of mixed fact and law, and that the goal of contractual interpretation is to ascertain the objective intention of the parties at the time the contract was made. [ 62 ] Sattva endorsed a contextual approach to contractual interpretation, under which courts look to the surrounding circumstances of the contract — the factual matrix — to determine the meaning of the contract's words. The factual matrix includes all relevant background facts known to both parties at the time the contract was made. [ 63 ] The shift towards a contextual approach to contractual interpretation was described by this Court as a "shift away from a technical approach directed at the literal meaning of the words to a more practical approach directed at understanding the meaning of the words as used by the contracting parties in the particular context in which they were used" (Sattva, at para. 47). [ 64 ] This approach requires courts to read the words of a contract in their ordinary and natural sense, having regard to the context in which they were used. It does not mean that courts can ignore or override the plain meaning of the words used by the parties; rather, it means that courts must interpret those words in their commercial and factual context. [ 65 ] The modern approach to contractual interpretation also requires courts to prefer interpretations that give effect to all of the words of a contract, rather than interpretations that render some words redundant or meaningless. Courts should also prefer interpretations that are commercially reasonable and that reflect the objective intention of the parties. ##### (3) The Legal Treatment of Exclusion Clauses [ 66 ] Exclusion clauses have long been subject to special scrutiny in contract law. Courts have recognized that exclusion clauses can be used to allocate risk in ways that may be unfair or oppressive to weaker parties, and they have developed rules to address this concern. [ 67 ] The leading Canadian case on exclusion clauses is Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69. In Tercon, this Court set out a three-step framework for assessing the enforceability of exclusion clauses. [ 68 ] The first step asks whether the exclusion clause applies in the circumstances. This requires a court to interpret the clause in light of its language and the surrounding circumstances to determine whether it covers the breach in question. [ 69 ] The second step asks whether the exclusion clause was unconscionable at the time the contract was made. If it was, the court may refuse to enforce it. [ 70 ] The third step asks whether there is some overriding public policy consideration that outweighs the strong public interest in the enforcement of contracts. If there is, the court may refuse to enforce the clause even if it is not unconscionable. [ 71 ] In this case, only the first step of the Tercon framework is in issue. The question is whether the exclusion clauses in the parties' contract apply to exclude Earthco's liability for breach of the implied condition in s. 14 of the SGA. [ 72 ] The first step of the Tercon framework is an exercise in contractual interpretation. It requires a court to determine, based on the language of the exclusion clause and the surrounding circumstances, whether the parties intended the clause to apply to the breach in question. [ 73 ] The modern approach to contractual interpretation, as set out in Sattva, applies to this exercise. Courts must look to the language of the exclusion clause in light of the factual matrix to determine what the parties objectively intended. ##### (4) Explicit, Clear and Direct Language as Applied to Statutory Conditions and Identity [ 74 ] There is a well-established principle in sale of goods law that, to oust a statutory implied condition by express agreement under s. 53, the parties must use language that is explicit, clear and direct. This principle was articulated by this Court in Hunter Engineering Co. v. Syncrude Canada Ltd., [1989] 1 S.C.R. 426. [ 75 ] The requirement for explicit, clear and direct language reflects the importance of the statutory protections provided by the SGA. These protections are implied into contracts for the sale of goods to protect buyers from certain risks. If parties wish to contract out of these protections, they must make clear that this is their intention. [ 76 ] However, the requirement for explicit, clear and direct language does not mean that parties must use specific technical terms or "magic words." What is required is that the language used clearly and directly manifests the parties' intention to oust the statutory protection in question. [ 77 ] The Court of Appeal in this case interpreted the requirement for explicit, clear and direct language too rigidly. It held that, to oust the implied condition in s. 14, the parties must use language that explicitly refers to the "identity" of the goods or to the specific implied condition in s. 14. In my view, this interpretation is incorrect. [ 78 ] The SGA does not require the parties to use specific technical terms. Rather, it requires that the parties' intention to oust the implied statutory term be clearly and directly stated. Whether the language used is sufficient to meet this requirement is a question of interpretation that depends on the language of the contract and the surrounding circumstances. [ 79 ] The Court of Appeal's approach would transform the requirement for explicit, clear and direct language into a requirement for the use of specific technical terms. This would impose a formalistic requirement that is inconsistent with the modern approach to contractual interpretation endorsed in Sattva. [ 80 ] Moreover, the Court of Appeal's approach would lead to results that are commercially unreasonable. Commercial parties do not always use technically precise legal language in their contracts. If courts required them to do so to oust statutory implied conditions, many commercial contracts would fail to give effect to the parties' actual intentions. [ 81 ] I therefore conclude that the requirement for explicit, clear and direct language in s. 53 does not require the use of specific technical terms. Rather, it requires that the parties' intention to oust the implied statutory term be clearly and directly stated in the contract, without relying on inference or implication. [ 82 ] Having established the proper interpretation of the requirement for explicit, clear and direct language, I turn to the question of whether the exclusion clauses in this case were sufficient to oust the implied condition in s. 14 of the SGA. [ 83 ] The exclusion clauses in this case stated that, if Pine Valley waived its right to test the material before it was shipped, Earthco would "not be responsible for the quality of the material." The word "quality" in these clauses is central to the dispute. [ 84 ] The Court of Appeal held that the word "quality" could not be read to include "identity" or "description." In the court's view, because the exclusion clauses referred only to "quality" and not to "identity" or "description" they were insufficient to oust liability under s. 14 of the SGA. [ 85 ] I disagree with this interpretation. The word "quality" is not a term of art in contract law. In its ordinary and natural sense, it can refer to the characteristics or properties of goods, including their composition. In the context of the parties' contract, it is necessary to consider what the parties meant by using the word "quality." [ 86 ] The factual matrix of the parties' contract is highly relevant to this question. Both parties knew that the topsoil was an organic and changing substance whose composition could vary over time. Both parties knew that the test results were dated and that the topsoil's composition might have changed since the tests were conducted. Earthco had warned Pine Valley to obtain updated test results before committing to the purchase. Pine Valley, facing the threat of liquidated damages, chose to waive its right to test the soil and insist on immediate delivery. [ 87 ] In this context, the parties' use of the word "quality" in the exclusion clauses must be interpreted in light of their objective intention. The parties were allocating the risk that the topsoil's composition might not match the test results that had been provided. The word "quality" in the exclusion clauses was intended to cover all of the topsoil's characteristics, including its composition. [ 88 ] This interpretation is consistent with the trial judge's findings of fact. The trial judge found that the parties came to an express agreement about the allocation of risk, using "direct, clear and express language in their contract." He found that the objective intention of the parties was for Pine Valley to waive its right to pursue Earthco for any liability relating to the composition of the topsoil. [ 89 ] The Court of Appeal substituted its own interpretation of the exclusion clauses for that of the trial judge. In doing so, it applied an overly rigid approach to the word "quality" and failed to give adequate weight to the surrounding circumstances of the contract's formation. [ 90 ] In my view, the Court of Appeal erred in doing so. The trial judge's interpretation of the exclusion clauses was reasonable and was supported by the language of the contract and the surrounding circumstances. There was no extricable error of law that would justify appellate intervention. [ 91 ] I would therefore restore the trial judge's judgment. [ 92 ] I add that this does not mean that exclusion clauses can always be used to oust statutory implied conditions by referring to "quality." The sufficiency of any given exclusion clause depends on its language and the surrounding circumstances. In this case, the particular facts — including the parties' knowledge of the changing nature of topsoil, Earthco's warning to obtain updated test results, and Pine Valley's deliberate decision to waive testing — make clear that the parties intended the exclusion clauses to cover liability arising from the topsoil's composition. #### D. Summary of the Proper Approach to Interpreting Exclusion Clauses Under Section 53 of the Sale of Goods Act [ 93 ] In summary, the proper approach to interpreting exclusion clauses under s. 53 of the SGA is as follows. [ 94 ] First, s. 53 requires that any agreement to oust or vary an implied statutory term be express. An agreement is express if it is stated in direct and explicit terms, without relying on inference or implication. [ 95 ] Second, the requirement that an agreement be express does not require the use of specific or technical language. Parties are not required to use "magic words." What is required is that the parties' intention to oust the implied statutory term be clearly and directly stated in the contract. [ 96 ] Third, whether an exclusion clause constitutes an "express agreement" within the meaning of s. 53 is a question of interpretation that depends on the language of the clause and the surrounding circumstances. Courts should apply the modern approach to contractual interpretation endorsed in Sattva, focusing on the objective intention of the parties as revealed by the contract's language and factual matrix. [ 97 ] Fourth, the first step of the Tercon framework applies to the analysis of exclusion clauses under s. 53. Courts must determine whether the exclusion clause, properly interpreted, applies to the breach in question. [ 98 ] Fifth, the surrounding circumstances of the contract's formation are relevant to the interpretation of exclusion clauses. Courts may consider the factual matrix to determine what the parties objectively intended by the language they used. [ 99 ] Sixth, where a trial judge has made findings of fact about the surrounding circumstances and the objective intention of the parties, appellate courts should defer to those findings unless they are affected by palpable and overriding error. #### E. Clauses 6 and 7 Exempt Earthco From Liability Under Section 14 [ 100 ] Applying this framework to the facts of this case, I conclude that clauses 6 and 7 of the parties' contract constitute an "express agreement" within the meaning of s. 53 of the SGA to oust Earthco's liability for breach of the implied condition in s. 14. [ 101 ] The exclusion clauses clearly and directly state that, if Pine Valley waived its right to test the material before it was shipped, Earthco would "not be responsible for the quality of the material." This language clearly and directly manifests the parties' intention to allocate to Pine Valley the risk that the topsoil's composition might not match the test results. [ 102 ] The surrounding circumstances of the contract's formation strongly support this interpretation. Both parties knew that the topsoil was an organic and changing substance whose composition could vary over time. Both parties knew that the test results were dated and that the topsoil's composition might have changed. Earthco had warned Pine Valley to obtain updated test results. Pine Valley, facing the threat of liquidated damages, chose to waive its right to test the soil. [ 103 ] The trial judge's interpretation of the exclusion clauses was consistent with the language of the contract and the surrounding circumstances. He found that the parties came to an express agreement about the allocation of risk, and that their objective intention was for Pine Valley to waive its right to pursue Earthco for any liability relating to the topsoil's composition. [ 104 ] The Court of Appeal erred in substituting its own interpretation for that of the trial judge. The Court of Appeal applied an overly rigid approach to the word "quality" and failed to give adequate weight to the surrounding circumstances. [ 105 ] Moreover, the Court of Appeal erred in holding that the trial judge improperly used the factual matrix. The modern approach to contractual interpretation endorsed in Sattva requires courts to consider the factual matrix when interpreting the language of a contract. The trial judge was correct to do so. [ 106 ] I note that the Court of Appeal correctly identified the distinction between "quality" and "description" as concepts under the SGA. However, it erred by treating this distinction as requiring the use of specific technical terms in exclusion clauses. The distinction between "quality" and "description" is relevant to determining what implied conditions the SGA imposes, not to what language parties must use to oust those conditions. [ 107 ] The Court of Appeal also erred by holding that the trial judge failed to apply the requirement for "explicit, clear and direct" language. The trial judge did apply this requirement. He found that the exclusion clauses used "direct, clear and express language" to manifest the parties' intention to oust Earthco's liability for any defects in the topsoil. [ 108 ] The Court of Appeal's error lay in how it applied the requirement for "explicit, clear and direct" language. It interpreted this requirement as demanding the use of technical legal terms — specifically, the terms "condition" "identity" or "description." This is too rigid an approach and is inconsistent with the modern approach to contractual interpretation. [ 109 ] In my view, the exclusion clauses in this case used language that was sufficiently explicit, clear and direct to oust Earthco's liability under s. 14 of the SGA. The parties agreed that if Pine Valley waived its right to test the material, Earthco would not be responsible for the material's quality. Read in context, this language clearly manifests the parties' intention to allocate to Pine Valley the risk that the material's composition might not match the test results. [ 110 ] This interpretation gives effect to the parties' objective intention and respects their freedom to allocate risk in their commercial contracts. Pine Valley was a sophisticated commercial party that made a deliberate decision to waive its right to test the topsoil. It should be held to the consequences of that decision. [ 111 ] I note that this outcome is not unfair. Pine Valley was warned by Earthco that the test results were dated and that it should obtain updated results before committing to the purchase. Pine Valley chose not to do so, presumably because it was in a rush to avoid liquidated damages. Having made that choice, it cannot now claim that it should be entitled to damages because the topsoil's composition did not match the dated test results. [ 112 ] I also note that the result in this case is consistent with the principle that exclusion clauses should be interpreted in light of the commercial context in which they were made. The parties were both commercial entities engaged in a commercial transaction. They were free to allocate risk as they saw fit, and they chose to do so by including the exclusion clauses in their contract. [ 113 ] Finally, I note that nothing in this judgment should be taken to suggest that exclusion clauses can always oust statutory implied conditions merely by referring to "quality." The sufficiency of any given exclusion clause depends on its language and the surrounding circumstances. In this case, the particular facts make clear that the parties intended the exclusion clauses to cover liability arising from the topsoil's composition. [ 114 ] For the foregoing reasons, I conclude that the exclusion clauses constitute an "express agreement" within the meaning of s. 53 of the SGA to oust Earthco's liability for breach of the implied condition in s. 14. The trial judge correctly dismissed Pine Valley's action. #### VI. Disposition [ 115 ] I would allow the appeal, set aside the judgment of the Court of Appeal, and restore the trial judge's judgment dismissing Pine Valley's action. Earthco is entitled to its costs throughout. --- ## Dissenting Reasons Côté J. (dissenting) — ### Table of Contents | Section | Paragraph | |---------|-----------| | I. Overview | 116 | | II. The Sale of Goods Act Framework | 119 | | III. Section 53 and the Requirements for Express Agreement | 135 | | IV. Application to Clauses 6 and 7 | 155 | | V. Conclusion | 184 | | Appendix | — | --- ### I. Overview [ 116 ] This appeal concerns the interpretation of certain provisions of the Sale of Goods Act, R.S.O. 1990, c. S.1 ("SGA"), and their application to a contract for the sale of topsoil. More specifically, it involves determining whether and how parties can contract out of an implied condition under that Act. [ 117 ] The appellant, Earthco Soil Mixtures Inc. ("Earthco"), and the respondent, Pine Valley Enterprises Inc. ("Pine Valley"), entered into a contract for the sale of topsoil with a composition agreed upon on the basis of test results ("Contract"). In clauses 6 and 7 of the Contract ("Exclusion Clauses"), the parties agreed that Earthco, the seller, would "not be responsible for the quality" of the topsoil if Pine Valley, the buyer, waived its right to test the topsoil before it was shipped. After the topsoil was delivered, it was discovered that it did not have the composition Pine Valley had bargained for. Pine Valley now seeks damages arising from this breach. [ 118 ] In my view, the Exclusion Clauses are not an "express agreement" within the meaning of s. 53 of the SGA to exclude Earthco's liability for a breach of the implied condition in s. 14 that goods sold by description will correspond with their description. I would therefore dismiss the appeal. --- ### II. The Sale of Goods Act Framework [ 119 ] The SGA protects buyers by implying certain conditions into each contract for the sale of goods, such as the statutory conditions that the goods will correspond with their description (s. 14), will be fit for their purpose (s. 15, para. 1), and will be of merchantable quality (s. 15, para. 2). Each of these statutory conditions is distinct, and it is important not to conflate them. [ 120 ] Section 14 sets out an implied condition that the goods delivered under a contract for the sale of goods by description will correspond with their description. Establishing a breach of s. 14 involves a two-step analysis. It is first necessary to determine whether the contract is a sale by description within the meaning of s. 14. If so, it is then necessary to determine whether the goods delivered corresponded with their agreed-upon description. [ 121 ] This is a fact-specific determination that turns on whether a statement describing the goods being sold was made and reasonably relied upon. Section 14 is to be distinguished from s. 15, which is broadly directed at the quality of goods. In particular, s. 15 para. 1 sets out an implied condition of fitness for purpose, and s. 15 para. 2 sets out an implied condition of merchantable quality. [ 122 ] I agree with the majority that the contract in this case was a sale by description, and that the topsoil delivered did not correspond with its description. The only issue before this Court is whether the Exclusion Clauses constituted an "express agreement" under s. 53 of the SGA to oust liability for the breach of this implied condition. [ 123 ] The SGA does not restrict the parties' common law freedom to shape their agreement as they see fit. They are free to contract out of implied terms, and s. 53 precisely delineates the manner in which they may demonstrate their intention to do so. One route for ousting liability arising in the context of the SGA is that the parties are free to structure their own contract as they see fit by express agreement. [ 124 ] As set out by the Court in Hunter Engineering Co. v. Syncrude Canada Ltd., [1989] 1 S.C.R. 426, clear, direct, and unambiguous language is required to oust a statutory protection by express agreement. Any intention to exclude liabilities arising from the SGA must be expressed in language inconsistent with the specific content of the terms implied by the statute. Reference to a different legal duty will not suffice. Parties are not required to use magic words; rather, they must use language that is clearly and directly aimed at excluding the content of the conditions they purport to vary. [ 125 ] Where only a particular duty is excluded by the parties' language, all other duties remain. Should the parties fail to use language that unambiguously encompasses the implied condition or warranty in question, no express agreement can be said to have been concluded. An attempted exclusion of liability may fail because the words used by the parties are directed at excluding liability with respect to the quality of the goods when the defect is instead related to their description. [ 126 ] The SGA represents the legislature's understanding of commercial efficacy or common sense in the sale of goods context, and its provisions are designed to promote certainty and predictability. There is nothing unfair or unrealistic in assuming that the parties knew their respective legal positions in entering into the contract. Given that the parties are taken to know their legal positions in entering into a contract of sale, they must also be presumed to intend the legal consequences of the words they use. [ 127 ] Although interpreting the words used in an exclusion clause may require reference to the whole contract or the surrounding circumstances, the legislature has indicated that the rights, duties, and liabilities arising under the SGA must be considered a vital part of the setting in which parties contract. The exercise of contractual interpretation cannot be conducted in a manner that disregards the law governing the contract. [ 128 ] The majority's approach effectively allows the surrounding circumstances to dictate what the parties' agreement says, rather than to help interpret what those words mean. This goes beyond what Sattva permits and creates uncertainty in commercial transactions. [ 129 ] I note that the approach endorsed by the majority puts buyers at a disadvantage. If sellers can use vague references to "quality" to oust all liability under the SGA — including liability for breach of the implied condition that goods correspond with their description — buyers will have less certainty about the protections they are entitled to under the statute. [ 130 ] This is inconsistent with the purpose of the SGA. The SGA was enacted to protect buyers by implying certain conditions into contracts for the sale of goods. These protections exist precisely because buyers may not always be in a position to bargain for them. If sellers can oust these protections merely by referring to "quality" in their contracts, the statutory protections will be undermined. [ 131 ] In my view, the proper approach is to require parties who wish to oust a statutory implied condition to use language that clearly and directly refers to that condition. This does not mean that parties must use "magic words." But it does mean that the language used must clearly and directly manifest the parties' intention to oust the specific statutory protection at issue. [ 132 ] Applied to this case, the Exclusion Clauses referred to the "quality" of the topsoil. Under the SGA"quality" is a legal term that relates to the merchantability and fitness for purpose of goods, as set out in s. 15. The term "quality" does not, in its ordinary and natural sense, refer to the identity or description of goods, which is the subject of s. 14. [ 133 ] Because the Exclusion Clauses referred only to "quality" they did not clearly and directly manifest the parties' intention to oust Earthco's liability for breach of the implied condition in s. 14, which relates to the identity or description of the topsoil. [ 134 ] I therefore conclude that the Exclusion Clauses did not constitute an "express agreement" within the meaning of s. 53 of the SGA to oust Earthco's liability under s. 14. The appeal should be dismissed. --- ### III. Section 53 and the Requirements for Express Agreement [ 135 ] Section 53 of the SGA provides that implied rights, duties and liabilities may be negatived or varied by "express agreement." I understand this to require that the parties' agreement to oust or vary the implied statutory term be stated in clear, direct and unambiguous terms. [ 136 ] The requirement for an "express agreement" in s. 53 serves an important protective function. It ensures that parties who may not be aware of their statutory rights do not inadvertently contract out of those rights. It also promotes certainty in commercial transactions by requiring parties who wish to depart from the statutory regime to do so in clear and unambiguous terms. [ 137 ] The requirement for an express agreement does not mean that parties must use specific technical legal terms. However, it does mean that the language used must clearly and directly manifest the parties' intention to oust the specific statutory protection at issue. [ 138 ] This Court's decision in Hunter Engineering established that, to oust a statutory implied condition by express agreement, the parties must use language that is explicitly and unambiguously directed at the specific implied condition being excluded. Language that is directed at a different legal duty will not suffice. [ 139 ] In my view, the majority's approach departs from this established principle. The majority holds that the word "quality" in the Exclusion Clauses can be expanded, in light of the surrounding circumstances, to cover the implied condition of correspondence with description in s. 14. But this approach effectively allows the factual matrix to override the plain meaning of the words used by the parties. [ 140 ] Sattva does not permit courts to use the factual matrix to rewrite the parties' contract or to give words a meaning that they cannot reasonably bear. The factual matrix can be used to interpret the meaning of words, but it cannot be used to substitute for the words themselves. [ 141 ] In this case, the word "quality" has a relatively clear meaning under the SGA. It refers to the merchantability and fitness for purpose of goods, which is the subject of s. 15 of the SGA. Using the factual matrix to expand the meaning of "quality" to cover the identity or description of the goods — which is the subject of s. 14 — is not an exercise in interpretation. It is an exercise in rewriting the parties' contract. [ 142 ] This approach creates significant uncertainty in commercial transactions. If the word "quality" can be expanded to cover "description" in some factual contexts but not others, commercial parties will not know with certainty what their exclusion clauses mean. This is inconsistent with the SGA's goal of promoting certainty and predictability in commercial transactions. [ 143 ] The majority's approach also conflicts with the principle that statutory protections should be given a purposive interpretation. The SGA was enacted to protect buyers by implying certain conditions into contracts for the sale of goods. If the word "quality" in an exclusion clause can be expanded to oust not only s. 15 but also s. 14 protections, the scope of statutory protection for buyers will be significantly reduced. [ 144 ] I therefore disagree with the majority's approach. In my view, the proper approach is to require that parties who wish to oust the implied condition in s. 14 use language that clearly and directly refers to the identity or description of the goods, or to the specific implied condition in s. 14. [ 145 ] This approach is consistent with the established principle from Hunter Engineering that language directed at a different legal duty will not suffice to oust a statutory implied condition. It is also consistent with the purpose of the SGA to protect buyers. [ 146 ] I note that this approach does not require parties to use technical legal terms. They do not need to refer to "s. 14" or to "correspondence with description." But they do need to use language that clearly and directly manifests their intention to oust the specific statutory protection at issue. [ 147 ] For example, a clause stating that the seller "is not responsible for any defects in the composition, characteristics or identity of the goods" would clearly and directly manifest the parties' intention to oust liability under s. 14. A clause stating that the seller "is not responsible for the quality of the goods" does not. [ 148 ] In this case, the Exclusion Clauses stated that Earthco would "not be responsible for the quality of the material." This language clearly and directly manifests the parties' intention to oust Earthco's liability for defects in the quality of the topsoil — i.e., for breaches of s. 15 of the SGA. It does not clearly and directly manifest the parties' intention to oust Earthco's liability for defects in the identity or description of the topsoil — i.e., for breaches of s. 14 of the SGA. [ 149 ] I therefore conclude that the Exclusion Clauses did not constitute an "express agreement" within the meaning of s. 53 to oust Earthco's liability under s. 14. [ 150 ] I acknowledge that the result in this case may seem harsh to Earthco. Earthco warned Pine Valley to obtain updated test results and Pine Valley chose not to do so. However, the parties had the ability to draft their exclusion clauses to clearly and directly oust liability under s. 14. They did not do so. The Court cannot now rewrite their contract to achieve the result that Earthco may have intended. [ 151 ] I also note that the parties' intentions, as revealed by the factual matrix, support the conclusion that the Exclusion Clauses were directed at s. 15 quality defects and not at s. 14 description defects. The Exclusion Clauses were added to the contract specifically in response to Earthco's concern that the test results were dated and that the topsoil's composition might have changed. This suggests that the parties were focused on the risk that the topsoil might not be fit for Pine Valley's purposes — a s. 15 concern — rather than on the risk that the topsoil might not be of the type that Pine Valley had agreed to buy — a s. 14 concern. [ 152 ] This interpretation is consistent with the ordinary and natural meaning of the word "quality" which relates to the fitness and merchantability of goods. It is also consistent with the principle that exclusion clauses should be interpreted narrowly, since they derogate from the parties' statutory rights. [ 153 ] For these reasons, I would dismiss the appeal and restore the judgment of the Court of Appeal. [ 154 ] I will now address the specific arguments made by the majority in more detail. --- ### IV. Application to Clauses 6 and 7 [ 155 ] The majority concludes that the word "quality" in the Exclusion Clauses must be interpreted in light of the surrounding circumstances, and that the surrounding circumstances make clear that the parties intended the word "quality" to cover all of the topsoil's characteristics, including its composition. [ 156 ] I respectfully disagree. The surrounding circumstances can be used to interpret the meaning of words, but they cannot be used to expand the meaning of words beyond what those words can reasonably bear. [ 157 ] The word "quality" has a well-established meaning in the context of the SGA. It refers to the fitness and merchantability of goods. This meaning is reflected in s. 1(1) of the SGA, which defines "quality of goods" as including "their state or condition." Under the SGA"quality" is distinct from "description" or "identity" which is the subject of s. 14. [ 158 ] The parties used the word "quality" in the Exclusion Clauses. They chose this word, rather than broader language such as "any liability arising from the goods" or "defects in the composition or characteristics of the goods." This choice of language is significant. [ 159 ] By choosing to refer to "quality" rather than to "identity" "description" or "composition" the parties limited the scope of the Exclusion Clauses to s. 15 defects. They cannot now claim that they intended to cover s. 14 defects as well. [ 160 ] The majority's approach effectively disregards the parties' choice of language and replaces it with what the majority thinks the parties "must have intended" based on the surrounding circumstances. This is not consistent with the modern approach to contractual interpretation endorsed in Sattva, which requires courts to give effect to the actual words used by the parties. [ 161 ] I note that the majority's approach would create significant uncertainty for commercial parties. If the word "quality" can be expanded to cover "description" in some factual contexts but not others, commercial parties will not know with certainty what their exclusion clauses mean. This uncertainty is inconsistent with the SGA's goal of promoting certainty and predictability in commercial transactions. [ 162 ] The majority also emphasizes that Pine Valley was a sophisticated commercial party that made a deliberate decision to waive its right to test the topsoil. This is true. But this does not mean that Pine Valley intended to waive all of its statutory rights, including the right to receive goods that correspond with their description under s. 14. [ 163 ] Pine Valley's decision to waive its right to testing was a commercial decision made under time pressure. It does not follow from this decision that Pine Valley intended to accept goods of any composition, regardless of how different that composition might be from the Specifications. [ 164 ] I also note that the majority's approach would allow commercially sophisticated parties to oust statutory implied conditions by using vague language in their contracts. This would undermine the protective purpose of the SGA and would create a two-tier system of statutory protections — one for sophisticated commercial parties and one for less sophisticated parties. [ 165 ] The SGA was not enacted to protect only unsophisticated buyers. It was enacted to establish a regime of default rules that apply to all contracts for the sale of goods, regardless of the sophistication of the parties. If sophisticated parties wish to depart from this regime, they must do so clearly and unambiguously. [ 166 ] For these reasons, I would conclude that the Exclusion Clauses did not constitute an "express agreement" within the meaning of s. 53 of the SGA to oust Earthco's liability under s. 14. [ 167 ] I now address certain specific arguments raised by the majority. [ 168 ] The majority argues that the Court of Appeal erred by "transforming" the proposition that quality and description are distinct concepts into a "rigid rule." With respect, I do not think the Court of Appeal erred in this way. The Court of Appeal correctly held that the distinction between quality and description is an important one under the SGA, and that parties who wish to oust the implied condition of correspondence with description must use language that is directed at that specific condition. [ 169 ] The majority also argues that the Court of Appeal erred by holding that the trial judge improperly used the factual matrix. I agree with the majority that courts can consider the factual matrix when interpreting exclusion clauses. However, the factual matrix cannot be used to expand the meaning of words beyond what they can reasonably bear. In this case, the trial judge used the factual matrix to expand the meaning of "quality" to cover "identity" or "description." This was an error. [ 170 ] The majority further argues that the Court of Appeal's approach would lead to "commercially unreasonable" results. I disagree. Requiring parties to use language that clearly and directly manifests their intention to oust specific statutory protections is not commercially unreasonable. It is a straightforward requirement that promotes certainty in commercial transactions. [ 171 ] Finally, I note that the majority's approach may have unintended consequences beyond the facts of this case. If the word "quality" in an exclusion clause can be expanded, in appropriate circumstances, to cover defects in description or identity, commercial parties may face uncertainty about the scope of their exclusion clauses. This would be counterproductive to the SGA's goal of promoting certainty in commercial transactions. [ 172 ] For all these reasons, I respectfully dissent. [ 173 ] I turn now to the proper interpretation of the Exclusion Clauses. [ 174 ] The Exclusion Clauses stated that, if Pine Valley waived its right to test the material before it was shipped, Earthco would "not be responsible for the quality of the material." The ordinary and natural meaning of these words is that Earthco would not be responsible for defects in the quality of the material — i.e., for breaches of s. 15 of the SGA. [ 175 ] This interpretation is consistent with the SGA's definition of "quality of goods" which includes their "state or condition." It is also consistent with the general understanding in sale of goods law that "quality" refers to the fitness and merchantability of goods, which is the subject of s. 15 of the SGA. [ 176 ] The surrounding circumstances do not expand this meaning. While it is true that both parties knew that the topsoil's composition might have changed since the tests were conducted, this does not mean that the parties intended the word "quality" to cover defects in the topsoil's composition. The surrounding circumstances merely confirm that the parties were aware of the risk that the topsoil might not meet the Specifications; they do not tell us whether the parties intended to allocate that specific risk through the Exclusion Clauses. [ 177 ] Indeed, the surrounding circumstances might equally support the conclusion that the parties intended the word "quality" to cover only fitness-for-purpose defects. If the topsoil's composition had been correct but the topsoil had been too wet or too dry to be used effectively, that would have been a defect in "quality" that the Exclusion Clauses would cover. If the topsoil's composition had been significantly different from the Specifications, that would have been a defect in "description" or "identity" that the Exclusion Clauses did not cover. [ 178 ] This interpretation is also consistent with the principle that exclusion clauses should be interpreted narrowly. The Exclusion Clauses derogated from Pine Valley's statutory right to receive goods that correspond with their description. Such derogations should not be found lightly. [ 179 ] For all these reasons, I conclude that the Exclusion Clauses did not constitute an "express agreement" within the meaning of s. 53 of the SGA to oust Earthco's liability for breach of the implied condition in s. 14. [ 180 ] I would therefore dismiss the appeal and restore the judgment of the Court of Appeal, which awarded Pine Valley damages of $444,564.46. [ 181 ] I note that this conclusion does not mean that commercial parties can never contract out of the implied condition in s. 14 of the SGA. They can, provided they use language that clearly and directly manifests their intention to do so. In this case, the parties did not use such language. [ 182 ] I also note that this conclusion does not prevent commercial parties from allocating the risk of changes in goods' composition. They can do so by using clear and specific language in their contracts. For example, they could include a clause stating that the seller "is not responsible for any changes in the composition of the goods after the date of the test results." Such language would clearly and directly manifest the parties' intention to allocate the risk of compositional changes, without relying on a vague reference to "quality." [ 183 ] In this case, Earthco could easily have drafted the Exclusion Clauses to clearly and directly cover the specific risk that the topsoil's composition might change. It did not do so. The Court cannot now rewrite the parties' contract to achieve the result that Earthco may have intended. --- ### V. Conclusion [ 184 ] For the foregoing reasons, I would dismiss the appeal. The Exclusion Clauses are not an "express agreement" within the meaning of s. 53 of the SGA to exclude Earthco's liability for breach of the implied condition in s. 14 that goods sold by description will correspond with their description. The judgment of the Court of Appeal should be restored. [ 185 ] I would award Pine Valley its costs throughout. --- ## Appendix: Relevant Provisions of the Sale of Goods Act, R.S.O. 1990, c. S.1 "quality of goods" includes their state or condition; "warranty" means an agreement with reference to goods that are the subject of a contract of sale but collateral to the main purpose of the contract, the breach of which gives rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated. 12 . . . (3) Where a contract of sale is not severable and the buyer has accepted the goods or part thereof, or where the contract is for specific goods the property in which has passed to the buyer, the breach of any condition to be fulfilled by the seller can only be treated as a breach of warranty and not as a ground for rejecting the goods and treating the contract as repudiated, unless there is a term of the contract, express or implied, to that effect. 13 In a contract of sale, unless the circumstances of the contract are such as to show a different intention, there is, (a) an implied condition on the part of the seller that in the case of a sale the seller has a right to sell the goods, and that in the case of an agreement to sell the seller will have a right to sell the goods at the time when the property is to pass; (b) an implied warranty that the buyer will have and enjoy quiet possession of the goods; and (c) an implied warranty that the goods will be free from any charge or encumbrance in favour of any third party, not declared or known to the buyer before or at the time when the contract is made. 14 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. 15 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. 16 (1) A contract of sale is a contract for sale by sample where there is a term in the contract, express or implied, to that effect. 18 (1) Where there is a contract for the sale of specific or ascertained goods, the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred. (2) For the purpose of ascertaining the intention of the parties, regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case. 20 . . . (2) Where goods are shipped and by the bill of lading the goods are deliverable to the order of the seller or the seller's agent, the seller in the absence of evidence to the contrary reserves the right of disposal. 27 Unless otherwise agreed, delivery of the goods and payment of the price are concurrent conditions, that is to say, the seller shall be ready and willing to give possession of the goods to the buyer in exchange for the price and the buyer shall be ready and willing to pay the price in exchange for possession of the goods. 28 (1) Whether it is for the buyer to take possession of the goods or for the seller to send them to the buyer is a question depending in each case on the contract, express or implied, between the parties, and apart from any such contract, express or implied, the place of delivery is the seller's place of business, if there is one, and if not, the seller's residence, but where the contract is for the sale of specific goods that to the knowledge of the parties, when the contract is made, are in some other place, then that place is the place of delivery. (5) Unless otherwise agreed, the expenses of and incidental to putting the goods in a deliverable state shall be borne by the seller. 30 (1) Unless otherwise agreed, the buyer of goods is not bound to accept delivery thereof by instalments. (2) Where there is a contract for the sale of goods to be delivered by stated instalments that are to be separately paid for and the seller makes defective deliveries in respect of one or more instalments or fails to deliver one or more instalments or the buyer neglects or refuses to take delivery of or pay for one or more instalments, it is a question in each case depending on the terms of the contract and the circumstances of the case whether the breach of contract is a repudiation of the whole contract or whether it is a severable breach giving rise to a claim for compensation but not to a right to treat the whole contract as repudiated. 31 (1) Where in pursuance of a contract of sale the seller is authorized or required to send the goods to the buyer, the delivery of the goods to a carrier whether named by the buyer or not, for the purpose of transmission to the buyer, is, in the absence of evidence to the contrary, delivery of the goods to the buyer. 33 . . . (2) Unless otherwise agreed, when the seller tenders delivery of goods to the buyer, the seller shall, on request, afford the buyer a reasonable opportunity of examining the goods for the purpose of ascertaining whether they are in conformity with the contract. 35 Unless otherwise agreed, where a buyer refuses to accept delivery of goods and has the right to do so, the goods are not bound to be returned to the seller, but it is sufficient if the buyer intimates to the seller that acceptance of the goods is refused. 48 . . . (3) Where there is an available market for the goods in question, the measure of damages is, in the absence of evidence to the contrary, to be ascertained by the difference between the contract price and the market or current price at the time or times when the goods ought to have been accepted, or, if no time was fixed for acceptance, then at the time of the refusal to accept. 49 . . . (3) Where there is an available market for the goods in question, the measure of damages is, in the absence of evidence to the contrary, to be ascertained by the difference between the contract price and the market or current price of the goods at the time or times when they ought to have been delivered, or, if no time was fixed, then at the time of the refusal to deliver. 51 . . . (3) In the case of breach of warranty of quality, such loss is, in the absence of evidence to the contrary, the difference between the value of the goods at the time of delivery to the buyer and the value they would have had if they had answered to the warranty. 53 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. 57 (1) The rules of the common law, including the law merchant, except in so far as they are inconsistent with the express provisions of this Act, and in particular the rules relating to the law of principal and agent and the effect of fraud, misrepresentation, duress or coercion, mistake or other invalidating cause, continue to apply to contracts for the sale of goods. --- Appeal allowed with costs throughout, Côté J. dissenting. Solicitors for the appellant: Lipman, Zener & Waxman PC, Toronto. Solicitors for the respondent: Scalisi Barristers, Concord, Ont. Solicitors for the intervener: Torys, Toronto. --- [^1]: The relevant provisions are reproduced in an appendix to these reasons.