CITATION: Manorgate Estates Inc. v. Kirkor Architects and Planners, 2017 ONSC 7154
COURT FILE NO.: CV-15526060
DATE: 2017-11-29
SUPERIOR COURT OF JUSTICE – ONTARIO
RE: MANORGATE ESTATES INC. AND MANORGATE ESTATES KINGSTON ROAD INC.
Plaintiffs
AND:
KIRKOR ARCHITECTS & PLANNERS
Defendants
BEFORE: JUSTICE FAVREAU
COUNSEL: Charles Simco and Michael Simaan for the Plaintiffs Matthew Urback for the Defendants
HEARD: September 1, 2017
ENDORSEMENT
Introduction
[1] In this action, the plaintiffs, Manorgate Estates Inc. and Manorgate Estates Kingston Road Inc. (collectively referred to as "Manorgate") allege that the defendant, Kirkor Architects & Planners ("Kirkor"), negligently misrepresented the cost of constructing a 24 unit stacked townhouse project, thereby improperly inducing Manorgate into entering into a contract with Kirkor for the design of the project.
[2] Kirkor seeks summary judgment on the basis that the agreement between the parties included an "entire agreement" exclusion clause that precludes Manorgate from suing Kirkor based on any pre-contractual representations.
[3] For the reasons that follow, I am satisfied that I can fairly and justly decide the issues between the parties based on the record before me, and that Kirkor is entitled to summary judgment.
Facts giving rise to the action
[4] Manorgate Estates Inc. is in the business of building residential homes. At the relevant time, its experience was primarily in building townhouses. Manorgate Estates Kingston Road Inc. is wholly owned by Manorgate Estates Inc., and was incorporated for the purpose of developing the project at issue in this litigation. John Colangelo is Manorgate's principal.
[5] Kirkor is an architectural firm in Toronto. Clifford Korman is a senior partner with Kirkor, and he had the primary dealings with Manorgate and Mr. Colangelo.
[6] In 2011, Manorgate was referred to Kirkor by an urban planner, Billy Tung, with whom Manorgate and Kirkor had both separately previously worked. At that time, Manorgate intended to build a 12 townhouse development at 1548 Kingston Road in Toronto. Mr. Korman provided a fee proposal to Mr. Colangelo, after which the parties entered into an agreement on September 23, 2011 (the "First Agreement").
[7] The First Agreement provided that Kirkor was to provide the design and architectural services for "12 grade related townhomes of 1700 sq. ft. three storeys with one parking space internal and one in the driveway". The First Agreement set out the scope of services to be provided by Kirkor, and the fees for those services.
[8] On the motion, Mr. Korman's evidence is that shortly after the First Agreement was executed, he was advised by Mr. Tung that the City of Toronto's planning department would prefer a higher density development at the planned location.
[9] Mr. Korman and Mr. Colangelo then met to discuss a concept involving approximately 24 stacked units with below grade parking.
[10] In his affidavit on the motion, Mr. Korman describes the discussion at the meeting about the scope of the project and the pricing for the units as follows:
At the meeting, I showed Colangelo an example of another stacked residential project my firm had designed. As it was a four storey structure, it could be built with wood framing. Construction costing was discussed briefly and in passing. Colangelo commented that Manorgate had built above grade, wood frame townhouses for about $130 per square foot. I remarked that wood framed stacked units cost in a similar range above grade but the below grade costs would be additional.
I did not advise Colangelo or Manorgate that stacked units with a below grade parking level would cost the same to build as townhouses. That would not be possible as townhouses do not carry the significant costs of below grade concrete structures which are required for an underground garage.
[11] In contrast, in his affidavit, Mr. Colangelo describes the discussion about pricing per unit for the 24 stacked units as follows:
I let Mr. Korman know that I wasn't familiar with constructing this type of project but Mr. Korman assured me that he had done this type of project on many occasions and because of the increase in density and the number of units, it could still be built for approximately $130 per square foot.
Mr. Korman had also explained to me that he had some first-hand knowledge of the costs that I could expect to encounter from his extensive experience in the industry. I fully understood that general costing of the project was included within the scope of the work I was hiring the defendant to perform.
[12] Following the meeting, Kirkor prepared a concept site plan for the 24 stacked townhouse units with a rectangular site layout. Kirkor then received feedback from the City of Toronto through Mr. Tung to the effect that the City would consider a four storey 24 stacked unit townhouse project, but that the design would have to address frontages on both streets of the corner lot, thereby requiring an L shape rather than a rectangular site layout.
[13] On November 18, 2011, the parties signed a new agreement (the "Second Agreement").
[14] The top of the first page of the Second Agreement states "Revised November 16, 2011".
[15] The description of the development is as follows:
The development is to consist of the following:
A rezoning or Committee of Adjustment design to create a 24 unit stacked back to back townhome project with one full level of below grade parking as per Kirkor's revised concept plan of November 16, 2011.
[16] In both the description of the design phase and the pricing for Kirkor's work on the design phase, there is reference to Phase 10.1 of the project as the original 12 above grade townhomes, and Phase 10.2 as the concept design for the 24 stacked townhomes.
[17] The Second Agreement, as did the First Agreement, contains entire agreement clause that explicitly excludes pre-contractual representations (the “Exclusion Clause”):
This agreement represents the entire and integrated agreement between the Client and the Architect and supersedes all prior negotiations, representations, or agreements, either written or oral. This agreement may be amended only by written instrument signed by both Client and Architect.
[18] The Second Agreement also includes a provision that explicitly excludes detailed cost estimates from the scope of services to be provided by Kirkor:
4.0 The following services are not part of the basic architectural service previously described in section 1.0. The fee for these services shall be an additional fee to be mutually agreed upon or shall be based upon the current years Schedule of Per Diem Rates and Disbursements.
4.4 Detailed estimates of construction costs, quantity surveys or life cycle cost studies.
[19] Following the signing of the Second Agreement, Kirkor proceeded to develop the design of the project.
[20] There is no evidence that Manorgate sought any advice from Kirkor or anyone else about the cost of the project until December 2014. By that point, Manorgate had developed a business plan that stated that the estimated cost of construction was approximately $130 per square foot plus $400,000 for shoring for the below grade parking.
[21] In December 2014, the bank that was to provide financing for the project required a construction cost estimate from an independent consultant. Manorgate obtained a cost estimate from Altus Group, that confirmed that the above grade construction costs would be approximately $130 per square foot, but that estimated the below grade costs at approximately $1,280,000.
[22] After Manorgate received the Altus Group estimate, on December 22, 2014, Mr. Colangelo wrote the following email to Mr. Korman:
Cliff I have a very big problem on this project when we came to you with this piece of land I wanted to build in wood and not go concrete due to costs. You suggested stacked towns which we agreed on and a similar project you designed was built you said it came in at $130.00 a square foot so it made sense to us. Since then after everything is complete I have costed it out and I carried in my budget $130.00 to build and $380,000.00 for shoring which worked out to almost 3,000,000.00 well my real numbers and that of Altus my cost consultant are coming to $245.00 a square foot or $4,900,000.00 which killed my project, which would result in me losing money building it out. I need some help on this project as right now it is killed, the sales office closed. At that construction cost it is amost equivalent to building a highrise my underground is working 65,000.00 per parking spot.
[23] Mr. Korman responded as follows:
Please come in To [sic] see me tomorrow morning. We have a similar project under construction on Lawrence and Allen expressway, and while the numbers have grown over the last few years, it is coming in closer to $160 psf. Hence, except for scale, yours is smaller, I don't understand the cost difference. Let's review together. Cliff
[24] On December 24, 2014, Mr. Korman did make some suggestions for revisions that would lead to cost reductions, but ultimately Manorgate did not proceed with the project design proposed by Kirkor. Rather, Manorgate was able to receive permission from the City to Toronto to revert back to its original plan for an above grade 12 townhouse project.
[25] On April 14, 2015, Manorgate commenced this action against Kirkor. The claim is based on allegations of negligent misrepresentation in relation to Mr. Korman's alleged representations in October 2011 that the project could be built for $130 per square foot. Manorgate seeks damages in the amount of $530,375.64, which it claims were incurred in relation to the development of the 24 unit stacked project, including fees in the amount of $174,211.91 paid to Kirkor.
Analysis
[26] While Kirkor's materials on the motion for summary judgment raised a number of issues, the only argument pursued at the hearing of the motion is whether summary judgment ought to be granted in this case based on the Exclusion Clause and its explicit exclusion of pre-contractual representations.
Test on motion for summary judgment
[27] Under subrule 20.04(2), summary judgment is to be granted if the Court is satisfied that there is no genuine issue requiring a trial.
[28] As set out in Hryniak v. Mauldin, 2014 SCC 7, at para. 49, there will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits using the summary judgment process. This is the case when the process: "(1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result."
[29] On a motion for summary judgment, the judge should first determine if there is a genuine issue requiring a trial based on the evidence before him or her without using the fact-finding powers in subrule 20.04(2.1). If there appears to be a genuine issue requiring a trial, Rule 20.04(2.1) permits the motion judge, at his or her discretion, to: (1) weigh the evidence, (2) evaluate the credibility of a deponent, or (3) draw any reasonable inference from the evidence unless it is in the "interest of justice" for these powers to be exercised only at trial: Hryniak, supra, at para. 66. The motion judge is also permitted to use the expanded powers under Rule 20.04(2.2) to direct a procedure such as a mini-trial, rather than a full trial.
[30] The responding parties may not rely on the prospect of additional evidence that may be tendered at trial; the respondents must put their best foot forward on the motion for summary judgment: Sweda Farms Ltd. v. Egg Farmers of Ontario, 2014 ONSC 1200 (Ont. S.C.J.), at para. 26, aff'd 2014 ONCA 878 (Ont. C.A.), leave to appeal to SCC refused, [2015] S.C.C.A. No. 97 (S.C.C.).
Expert report
[31] As a preliminary issue, I indicated at the hearing of the motion that I would not consider the opinion prepared by Pelican Woodcliff attached as an exhibit to Mr. Korman's affidavit. The report purports to provide an "opinion regarding the prudent level of due diligence related to construction costing as it applies to developers of proposed real estate projects".
[32] The case law is clear that expert opinion evidence cannot be given through a report attached to the affidavit of a party or a lay witness: see for example Danos v. BMW Group Financial Services Canada, a division of BMW Canada Inc., 2014 ONSC 2060 (Sup. Ct.) at para. 29, aff'd. 2014 ONCA 887; and Toronto-Dominion Bank v. Schrage, 2009 CanLII 45444 (ON SC), [2009] O.J. No. 3636 (Sup. Ct.) at para. 39. The rationale for this principle is that lay witnesses cannot give opinion evidence and the evidence of an expert cannot be tested if his or her report is attached to the affidavit of another witness.
[33] In this case, as conceded by counsel for the parties, the inadmissibility of Pelican Woodcliff's report has no effect on the outcome of the motion given that it is not relevant to the Exclusion Clause argument. Were I to decide that the clause does not apply and that a trial is necessary, the Pelican Woodcliff opinion may be relevant at trial on the issue of whether it was reasonable for Manorgate to rely on Mr. Korman's alleged representation about construction costs for the 24 unit stacked project.
Tercon test
[34] In Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] S.C.J. 4, the Supreme Court of Canada set out the test for determining whether a court should enforce a contractual exclusion clause:
The first issue, of course, is whether as a matter of interpretation the exclusion clause even applies to the circumstances established in evidence. This will depend on the Court's assessment of the intention of the parties as expressed in the contract. If the exclusion clause does not apply, there is obviously no need to proceed further with this analysis. If the exclusion clause applies, the second issue is whether the exclusion clause was unconscionable at the time the contract was made, "as might arise from situations of unequal bargaining power between the parties" (Hunter, at p. 462). This second issue has to do with contract formation, not breach.
If the exclusion clause is held to be valid and applicable, the Court may undertake a third enquiry, namely whether the Court should nevertheless refuse to enforce the valid exclusion clause because of the existence of an overriding public policy, proof of which lies on the party seeking to avoid enforcement of the clause, that outweighs the very strong public interest in the enforcement of contracts.
[35] In this case, Manorgate does not argue that there are overriding policy reasons for not enforcing the Exclusion Clause, therefore only the first two parts of the test apply.
[36] Accordingly, the issues to be decided are:
a. Are the representations allegedly made by Kirkor about costing covered by the Exclusion Clause?
b. If so, would it be unconscionable to enforce the Exclusion Clause?
Exclusion Clause applies to costing representations
[37] In this case, the language of the Exclusion Clause explicitly excludes pre-contractual representations stating "[t]his agreement represents the entire and integrated agreement between the Client and the Architect and supersedes all prior negotiations, representations, or agreements, either written or oral".
[38] As noted by this Court in Chandler v. Hollett, 2017 ONSC 2969 (Sup. Ct.) at paras. 55 and 60, the courts regularly give effect to these types of clauses:
The courts have routinely given effect to such clauses in the face of allegations based on pre-contractual representations, particularly in situations involving commercial contracts between sophisticated businesspeople represented by competent counsel: see Gutierrez v. Tropic International Ltd., 2002 CanLII 45017 (ON CA), [2002] O.J. No. 3079 (C.A.); Carevest Capital Inc. v. North Tech Electronics Ltd., [2010] O.J. No. 1939 (Div. Ct.); Hammer v. Cleeves, 2015 ONSC 2547.
The courts routinely give effect to entire agreement clauses, precisely to prevent this type of litigation, and to ensure the efficacy and efficiency of commercial arrangements. Here, the entire agreement clause applies to exclude the reliance on pre-contractual representations, since it is an express term of the contract that pre-contractual representations do not form part of the contract: Gutierrez v. Tropic International Ltd., 2002 CanLII 45017 (ON CA), 162 O.A.C. 247, 2002 CarswellOnt 2599 (C.A.) at paras. 24-25.
[39] Manorgate argues that the Exclusion Clause does not apply in this case for two reasons: 1) the Second Agreement is a continuation of the First Agreement and the Exclusion Clause should therefore not apply to representations made by Kirkor after the First Agreement was made, or 2) preliminary costing fell within the scope of services to be provided by Kirkor and was therefore not a representation but one of the services to be provided by Kirkor under the contract, which it failed to provide in a competent manner.
[40] I see no merit to these arguments.
[41] On the first argument, Manorgate relies on the decision of the Court of Appeal for Ontario in Soboczyynski v. Beauchamp, 2015 ONCA 282, in which the Court held that exclusion clauses only apply to past negotiations and representations, and have no applications to representations made during the currency of a contract unless explicitly stipulated in the contract. The Court, at paras. 43 to 47, set out this principle as follows:
An entire agreement clause is generally intended to lift and distill the parties' bargain from the muck of the negotiations. In limiting the expression of the parties' intentions to the written form, the clause attempts to provide certainty and clarity.
In Inntrepreneur Pub Co. Ltd. v. East Crown Ltd., [2000] 41 E.G. 209 (U.K. Ch.), Lightman J. colourfully described the purpose of an entire agreement clause as follows:
The purpose of an entire agreement clause is to preclude a party to a written agreement threshing the undergrowth and finding in the course of negotiations some (chance) remark or statement (often long forgotten or difficult to recall or explain) on which to found a claim such as the present to the existence of a collateral warranty... For such a clause constitutes a binding agreement between the parties that the full contractual terms are to be found in the document containing the clause and not elsewhere. [Emphasis added in original.]
Legal commentators appear to be united in their view that entire agreement clauses are, generally speaking, retrospective in nature. According to Angela Swan, "An "entire agreement" clause deals only with what was done or said before the agreement was made and seeks to exclude those statements and acts from muddying the interpretation of the agreement; it is a contractual invocation of the parol evidence rule": Canadian Contract Law, 3d ed. (Markham: LexisNexis Canada, 2012), at p. 600 (emphasis in original); see also John D. McCamus, The Law of Contracts, 2d ed. (Toronto: Irwin Law Inc., 2012), at p. 733.
Justice P.M. Perell agrees. He says that "[t]he parol evidence rule then directs that the written contract may not be contradicted by evidence of the oral and written statements made by the parties before the signing of the contract. The entire agreement clause is essentially a codification of the parol evidence rule": "A Riddle Inside an Enigma: The Entire Agreement Clause" (1998) The Advocates' Q. 287 at 290-91 (emphasis added).
And according to Professor M.H. Ogilvie, entire agreement clauses are "patently not applicable... where the representation postdates the contract": "Entire Agreement Clauses: Neither Riddle Nor Enigma" (2009) 87 The Canadian Bar Review at 642 (emphasis added in original).
[42] Based on these principles, according to Manorgate, the Second Agreement is a continuation of the First Agreement and the Exclusion Clause thereby has no application to representations made after the signing of the First Agreement. I reject this argument. In my view, it is evident that the Second Agreement was a new agreement. While the date heading the Second Agreement states "Revised November 16, 2011", it is evident that the parties signed a fresh document on November 18, 2011. In addition, the description of the project and the fees to be charged are different. Most significantly, the parties signed the Second Agreement after the alleged misrepresentations were made. Therefore, on its face, the Exclusion Clause which was present in the Second Agreement that stipulates that "this agreement … supersedes all prior negotiations, representations, or agreements" is clearly meant to apply to all negotiations, representations and agreements that predate the signing of the Second Agreement.
[43] I also reject the plaintiff's second argument as to why the Exclusion Clause does not apply in this case. Manorgate argues that preliminary costing for the project fell within the scope of services that Kirkor was to perform, and therefore Kirkor cannot avoid liability for its alleged negligence by relying on the Exclusion Clause. As reviewed above, the alleged advice regarding costing was provided prior the signing of the Second Agreement, and it is therefore difficult to see how it falls within the scope of services to be provided under that contract.
[44] More importantly, the terms of the Second Agreement itself don't support this argument. Nowhere in section 1.0 of the Agreement describing the services to be provided is there a reference to preliminary costing. The early stages of the project refer to "Concept Design" and "Preliminary Design", and the description of services under those rubrics are focused on designs, drawings, plans, and building code and zoning requirements. In addition, the Agreement explicitly states that "[d]etailed estimates of construction costs" are not part of the architectural services provided under the contract, but can be provided for additional fees. I reject the plaintiff's argument that the use of the word "detailed" implies that preliminary or high level costing forms part of the contract. Nothing else in the contract supports such an interpretation.
[45] Accordingly, I am satisfied that the Exclusion Clause in the Second Agreement applies to the alleged misrepresentation about the costing of the 24 unit stacked structure.
[46] I now turn to consideration of the plaintiff's argument that it would be unconscionable to enforce the Exclusion Elause in this case.
Application of Exclusion Clause not unconscionable
[47] In Singh v. Trump, 2016 ONCA 747 at para. 114, citing Domtar Inc. v. ABB Inc., 2007 SCC 50 at para. 62, the Court of Appeal described the doctrine of unconscionability in the context of an entire agreement clause as follows:
In ABB Inc. v. Domtar Inc., 2007 SCC 50, [2007] 3 S.C.R. 461, at para. 82, LeBel and Deschamps JJ. described the doctrine of unconscionability in the context of limitation clauses, a type of clause similar in nature to exclusion or entire agreement clauses:
Under the doctrine of unconscionability, a limitation of liability clause will be unenforceable where one party to the contract has abused its negotiating power to take undue advantage of the other. This doctrine is generally applied in the context of a consumer contract or contract of adhesion.
[48] Manorgate argues that it would be unconscionable in this case to enforce the Exclusion Clause because its prior experience was with above grade townhouse projects; it had no prior experience with stacked projects requiring underground parking. In contrast, Kirkor had prior experience with these types of projects. In addition, Manorgate submits that Kirkor used the alleged misrepresentation about pricing to induce the plaintiff to enter into the Second Contract for the design of the new project.
[49] In Singh v. Trump, supra, the Court of Appeal found that an exclusion clause was unconscionable in that case based on a number of factors including:
• The plaintiffs had "minimal investing experience";
• The exclusion clause was buried in the relevant agreements and not brought to their attention; and
• The exclusion clause that stated "The Vendor and the Purchaser agree that there is no representation … affecting this Agreement or the Property or supported hereby other than as expressed herein in writing", would not have been understandable to the plaintiffs.
[50] However, this case does not present the same disparity in bargaining power or difference in sophistication as in Singh v. Trump, supra. There is no basis for finding that Kirkor "abused its bargaining power to [take] undue advantage" of Manorgate. While Mr. Colangelo's experience may have been limited to above grade townhouses, he was an experienced builder. The differences in experience between the parties are a matter of degree, and not dramatically divergent such as a sophisticated developer taking advantage of inexperienced investors through a complex marketing scheme. Even if the alleged misrepresentations are as reported by Mr. Colangelo, they can hardly be characterized as designed to entrap or improperly induce Manorgate to enter into the Second Agreement with Kirkor. The below grade construction cost is not information that was uniquely in Kirkor's possession or that it was seeking to hide from Manorgate.
[51] The facts in this case are more like those in Chandler v. Hollett, supra, or Haliburton Forest & Wildlife Reserve Ltd. v. Toromont Industries Ltd., 2016 ONSC 2960, where no unconscionability was found in situations involving relatively sophisticated parties who had been given an opportunity to fully consider the agreements at issue.
[52] Accordingly, I find that it would not be unconscionable to enforce the Exclusion Clause in this case.
This an appropriate case for summary judgment
[53] I am satisfied that I can make a just and fair determination of this matter based on the evidence available on the motion and the submissions of counsel, and that the case does not raise a triable issue. In this case, the factual issues are discrete and most of the evidence is in writing and undisputed.
[54] The only significant disputed evidence is in relation to the content of the statement made by Mr. Korman to Mr. Colangelo prior to the formation of the Second Agreement about the costs of building the stacked townhouse units with below grade parking. Mr. Colangelo says that Mr. Korman had stated that the units could be built for $130 per square foot without reference to the additional costs associated with the below grade parking garage, whereas Mr. Korman says that he alerted Mr. Colangelo to the fact that there would be additional costs for the garage.
[55] As I have based my decision on the Exclusion Clause, this disparity in the evidence is of no significance. In fact, I have proceeded on the assumption that the misrepresentations alleged were made, but that the Exclusion Clause is nevertheless a complete defence to the claim. In the event I were wrong about the applicability of the Exclusion Clause, in my view, a trial would be required on the issues of the actual representation made by Mr. Korman, and if it was reasonable for Manorgate to rely on such a statement.
[56] However, given my finding that the Exclusion Clause is both applicable and enforceable, in my view, the matter does not raise a triable issue.
Conclusion
[57] In the result, for the reasons above, summary judgment is granted in favour of the defendant and the action is dismissed.
[58] If the parties are unable to agree on costs, the defendant may make brief submissions not exceeding three pages within 10 days of the release of these reasons, and the plaintiff may make responding submissions also not exceeding 3 pages 10 days thereafter.
FAVREAU J.
Date: November 29, 2017