COURT FILE NO.: CV-12-445556

DATE: 20200131

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

PINE VALLEY ENTERPRISES INC.

Plaintiff

– and –

EARTHCO SOIL MIXTURES INC., G & L GROUP LTD., RICHARD OUTRED and ORAZIO VALENTE

Defendants

Vito S. Scalisi, for the Plaintiff

Mark A. Klaiman, for the Defendant

HEARD: November 18, 19, 20, 25, 28, and 29, 2019

JUSTICE S. NAKATSURU

[1] The Plaintiff, Pine Valley Enterprises Inc. (“Pine Valley”), bought topsoil from the Defendant, Earthco Soil Mixtures Inc. (“Earthco”). Pine Valley did not get the type of topsoil it thought it was going to get. The topsoil was spread on a City of Toronto (the “City”) flooding project known as Moore Park Project (“Project”) in North York. This topsoil did not drain properly. Thus, the City made Pine Valley remove Earthco’s topsoil and replace it with a different topsoil. Pine Valley now sues Earthco for the damages it says it sustained as a result of the breach of contract.

[2] Before buying the topsoil, Earthco gave Pine Valley results of the soil tests that it did on three potential soils that it had. Pine Valley and the Project consultants hired by the City, CH2M Hill (“City Consultants”), decided to go with the topsoil labelled “R Topsoil”. However, the soil test for this sample was over a month old.

[3] Earthco submits that it specifically eschewed responsibility for the composition/texture[^1] and the quality of the topsoil once it left its premises, provided Pine Valley a chance to test the soil before that happened, and specifically warned Pine Valley of not further testing the topsoil. It is Earthco’s position that Pine Valley was under pressure from the City to complete the Project, and as such, Pine Valley approved delivery without testing and assumed the risk that the topsoil would be inadequate for the job.

[4] Although other claims in contract and tort have been raised in the Statement of Claim, in its final oral submissions, Pine Valley has limited its claim to s. 14 of the Sale of Goods Act, R.S.O. 1990, c. S. 1[^2] (“SGA”). The crux of its submission is that although Pine Valley signed a contract with an exclusionary clause, it only applied to its right to test the soil for chlorides. Moreover, regardless of which soil tests the exclusionary clause applied to, Pine Valley submits that the exclusionary clause itself is invalid. Pine Valley submits that it never contracted to receive anything other than the composition/texture of a soil with the test results of R Topsoil.

A. SUMMARY OF THE FACTS

1. Overview

[5] Pine Valley is in the contracting business for municipal parks. It has done hundreds of such parks. Rocky Bova is the President, Director, and sole shareholder. At the material time, Joe Cacciola was the Chief Administrative Officer. Rick Serrao, who had years of experience in turf management for golf courses and landscaping, was the Project Manager for the Project and reported to Mr. Bova.

[6] Pine Valley was hired as the contractor for the Project in 2011. The City undertook the Project to deal with basement flooding of surrounding residences in North York. The City hired the City Consultant for the Project to supervise its construction. This Project required Pine Valley to build a dry pond to be used to capture excess water in the neighborhood that would then drain away. In building this Project, Pine Valley had to install drainage pipes, proper topsoil for drainage, turf, and equipment for recreational use. Pine Valley had tried to obtain soil from other soil suppliers but in August the City Consultant refused the soils that had been presented by those suppliers. Mr. Serrao, who had past familiarity with Earthco, then contacted the company.

[7] Earthco is a large custom topsoil provider. Richard Outred is the Sales Manager for Earthco. Mr. Outred reported to Orazio Valente, the Vice-President of Sales at Earthco. Mr. Valente held that position from 2010-2014. He has since left Earthco and now works for a racetrack.

[8] Mr. Outred testified about the general practice of Earthco when a customer purchased soil. The order would come for a project with specifications outlined for the soil, usually from a landscape architect. Earthco would review the specifications and go through the test reports of some 200 different mixes that it had at its facility. The soil piles were very large, some as tall as an office building. Earthco would send relevant test reports of the various piles to the customer. The customer would assess the reports and would either approve or reject them.

[9] If the sample was approved, Earthco would manufacture or “batch” the soil, which is to essentially put different components of the soil (i.e., sand, topsoil, organics) together into one pile. The soil would then be screened for rocks and debris and made into a uniform mix. Once screened, the soil is piled. Ten different samples are then taken of the pile and mixed into one sample. This mixed sample is thereafter sent to a third-party laboratory for testing to ensure it meets the specifications. The test results would be forwarded to the client to show they meet the specifications contracted for and the soil is then ready to be shipped. Usually, the client gets approval from their landscape architect before asking for the soil to be delivered. The whole process takes between four to six weeks. Testing itself can take about two weeks depending on how busy the laboratory is.

[10] The original contract between the City and Pine Valley for the Project stipulated August 19, 2011, as the original date of substantial performance of the Project. However, there were a lot of delays, including rain delays and delays due to insufficient manpower, and that date could not be met.

[11] At the September 1, 2011 site meeting between Pine Valley and the City Consultant, Pine Valley asked to extend the substantial performance date to October 28, 2011. The City Consultant did not accept the extension as there had only been 21 days or about a month of rain delay. Thus, even considering bad weather, substantial performance should be completed by September 19, 2011.

[12] Another site meeting took place on September 15, 2011 with Mr. Serrao and Mr. Bova present. A further discussion about the delay occurred. Pine Valley advised that it anticipated more crews would be working and sodding by September 22, 2011. Before sodding could begin, the installation of the topsoil would have to be completed. The City Consultant was prepared to extend the date of substantial performance to October 3, 2011, provided there were explanations for the trucking delays. The City Consultant advised that any further delays beyond October 3, 2011 would be subject to liquidated damages of $500 per day.

[13] At the time of the site meeting of September 15, 2011, no topsoil supply had yet been obtained.

[14] On September 26, 2011, the City Consultant affirmed the substantial performance date to be no later than October 3, 2011. The October 3, 2011 date came and passed, and the topsoil had not yet been purchased, delivered, spread, or graded on the site. Mr. Serrao advised Mr. Bova that the City threatened Pine Valley with liquidated damages if they missed the October 3, 2011, substantial performance date. Ultimately, the City fixed October 14, 2011 as the date of substantial performance. Liquidated damages were imposed after that date.

[15] On October 6, 2011, a Purchase Order (the “Contract”) was signed for the topsoil from Earthco. The delivery of the topsoil commenced on October 7th and continued until October 19, 2011. The topsoil was spread on site as it was delivered.

[16] In November, after the topsoil was spread and graded and while Pine Valley was laying down the turf and completing other finishes to the Project, after a rain storm, ponding of water was discovered on the Project. On November 10, 2011, the City took soil samples for examination. The test results came back with a soil composition that differed significantly from the test results of the R Topsoil. This test had been conducted in August 2011. There was substantially more clay content in the topsoil that was actually delivered than what the test results of R Topsoil had indicated.

[17] While Pine Valley offered ways to try and change the soil composition, the City insisted that Pine Valley remove the soil and replace it with new topsoil. Pine Valley acceded to this request and incurred costs associated with it.

[18] Given this overview, let me now set out some of the more important evidence at this trial. As there was conflicting evidence led at trial, in order to make findings of credibility and reliability it is worthwhile to outline some of the documentary evidence created at the time of the events. These documents set out a reasonably detailed narrative of events. I also find them to be reliable. The evidence is significant given their contemporaneous nature; especially given how much time has passed between the events of 2011 and the trial dates in 2019.

2. The Documentary Evidence Made Contemporaneously at the Time

[19] On September 30, 2011, Mr. Serrao gave Tony Petrucci, a consultant employed with the City Consultant, a copy of the soil test results of the soil being proposed by the soil supplier, J. Jenkins & Sons. Pine Valley had previously used this supplier.

[20] On October 1, 2011, Mr. Petrucci wrote Mr. Serrao advising that this soil was not acceptable as the pH and the percentage of organic matter did not meet their specifications. Mr. Petrucci asked for information about a new topsoil source that Mr. Serrao had mentioned in their telephone conversation. Mr. Petrucci stated that the City was very concerned about the effect Pine Valley’s inability to secure a suitable topsoil source would have on the Project beyond the October 7th date that he identified in Pine Valley’s request for a time extension of the substantial performance of the Project.

[21] On October 3, 2011, at 8:25 a.m., Mr. Serrao asked Mr. Outred for information about topsoil. He provided the requirements for the topsoil in his email. Once received, Mr. Serrao advised he would forward it to the consultant to get approval. The City’s specifications for the topsoil were for 45% to 70% sand, 1% to 35% silt, and 14% to 20% clay. Mr. Serrao asked for 45% to 70% sand, 1% to 35% clay, and 14% to 20% (unspecified). In his testimony, Mr. Serrao admitted that he made a mistake in the specifications. However, the parties agree that nothing turns on this mistake.

[22] That same day, at 9:59 a.m. Mr. Outred provided a copy of three topsoil laboratory reports: (1) R Topsoil 2Pl; (2) R Topsoil; and (3) 50-50 Planting Mix.

[23] At 3:42 p.m., Mr. Serrao forwarded the Earthco test attachments to Mr. Petrucci. Mr. Serrao then corresponded by email at 7:54 p.m. to Mr. Outred saying that they have reviewed the three soil laboratory reports. He advised: that R Topsoil 2 Pl would be acceptable if the chloride is shown to be less than 100 ppm and will require the addition of peat to increase the organics; R Topsoil would be acceptable with the addition of peat to increase the organics; and the 50-50 Planting Mix was not acceptable. Mr. Serrao asked for pricing for R Topsoil 2 Pl and R Topsoil. Mr. Outred replied at 8:55 p.m. that he would check with the supplier to see if chlorides had been checked. He also advised that they raise the organic matter on the R Topsoil to get it to the required 4% organic matter. Regarding pricing, there was no premium for the three soils as they were produced in the region.

[24] On October 5, 2011, at 4:29 p.m., Mr. Serrao wrote to Mr. Outred and asked “is it possible you have this in your possession #1? And #2 did the lab get back to you re chlorides?” Mr. Outred responded at 4:35 p.m. “I just got this in, I think that we still need the original. What is your thoughts?”

[25] That same day at 4:46 p.m., Mr. Outred wrote Mr. Serrao and advised that he did not have the original in his possession yet. The chloride test took between five to seven business days depending on how busy the laboratory was with other soil samples. Mr. Outred wrote, “I think you should wait until the test is done but if you would like to start shipping at your own risk please let me know.”

[26] On October 5, 2011, Mr. Furfari signed a Purchase Order between Furfari Paving and Earthco (the “Contract”) for 3,678 cubic yards of “Screened topsoil with extra Organics added” for a price of $66,168. Also priced is “Soil Testing if required” at $300 per test. There were seven notations on the Contract. Notation 6 and 7 stated:

6. Furfari Paving has the right to test and approve the material at its own expense at our facility before it is shipped and placed. Please contact Richard Outred to arrange.

7. If Furfari waives its right to test and approve the material before it is shipped, Earthco Soils Inc. will not be responsible for the quality of the material once it leaves our facility.

[27] There is an initial handwritten addition on the Contract by Mr. Furfari saying the order was not to exceed $50,000. This was revised on October 6th at 8:54 a.m., to state the order was not to exceed $40,000.

[28] On October 6, 2011, at 8:47 a.m., Mr. Serrao wrote to Mr. Outred and stated: “Rocky called last night & said he wanted to start shipping the r-topsoil with added organics, can you confirm this for me to proceed.” At 8:54 a.m., Mr. Outred wrote to Mr. Serrao and Mr. Valente, including an email and attachment from Mr. Furfari advising that Furfari Paving had decreased the value so they could ship up to 1,968 cubic yards out of the 3,676 cubic yards Pine Valley required.

[29] At 10:30 a.m., Mr. Serrao wrote to Mr. Outred copying Mr. Bova and Mr. Ferrantone (a supervisor at Pine Valley) to commence the delivery of R Topsoil and asked that as many trucks as possible be dedicated to the job. At 10:32 a.m., Mr. Outred wrote to Mr. Valente and asked if it was okay to start delivering the materials to Furfari Paving. At 11:05 a.m., Mr. Valente wrote to Mr. Furfari copying Mr. Outred. Mr. Valente advised that they received the edited and signed quote that was sent that morning setting $40,000 as the limit for the topsoil job that Mr. Furfari was willing to pay. Mr. Valente said they will comply. He forwarded the email string from Mr. Serrao asking for delivery. Mr. Valente also wrote:

See the email string below-the folks at Pine Valley want us to start shipping material tomorrow, even though the material was just batched and not yet tested. As I explained to you on the phone and through the quote, you have the right to test the material we prepare for you before it gets shipped. However, once it leaves our yard, ownership of the material (including all risks associated with it) passes from us to you. Put another way, we are no longer responsible for the material once it leaves our yard.

My fear in this situation is that we have a third party to this agreement (Pine Valley) who is asking us to ship the material asap and bypass the testing of the material. If you’re ok with this, simply respond to this e-mail giving us the go-ahead and we’ll comply with your request.

[30] At 12:53 p.m., Mr. Furfari wrote to Mr. Valente copying Mr. Bova stating that Pine Valley is responsible for the material and Mr. Bova should make the final decision. Mr. Furfari wrote:

…The cities (sic) view would be that if they test at your yard, how would they know that material actually reached the site? That is why material samples are always obtained on site not at the source. I wish I could sell material without risk. My opinion is that if samples are obtained from the site prior to grading that Earthco will remain responsible for the material shipped. If Earthco will not be responsible for the material shipped than I suggest Pine Valley advise the City that he cannot purchase material from any Supplier that will meet the specification and pay $4.00 a cubic meter for material that may or may not be a risk.

Again, although I strongly advise against shipping and receiving material that the supplier will not stand behind, Rocky must make the final decision.

Mr. Valente forwarded this email to Mr. Outred at 1:31 p.m., advising that they can discuss later.[^3]

[31] At 5:14 p.m., Mr. Serrao again asked how many trucks Mr. Outred planned on using tomorrow. At 5:59 p.m., Mr. Outred gave the telephone number of Mr. Valente, his boss.

[32] That same day, Mr. Furfari wrote to Mr. Valente copying Mr. Bova, “Apparently the City and Rocky are accepting the topsoil and the conditions as stated in your email, please ship the topsoil immediately.” Mr. Bova then wrote to Mr. Furfari and Mr. Valente advising that this should suffice to satisfy Mr. Valente. However, the dollar value was around $60,000 and that this should be authorized. Mr. Bova tells Mr. Valente that this is a large order and to ensure all trucks are equally loaded and accurate. At 8:17 p.m., Mr. Valente wrote to Mr. Outred: “Hi guys, looks like we’re in business. Problem is that it’s for tomorrow. They met our conditions, so I want to get some material. Take trucks from other job if needed.” At 8:30 p.m., Mr. Valente wrote back to Pine Valley saying he has given his staff the go-ahead.

[33] On October 7, 2011, at 12:13 a.m., Mr. Outred wrote to staff at Earthco advising them of the nature of the mix and that he would be on the road the next morning to ensure the quality was good.

[34] On October 8, 2011, Mr. Serrao wrote to Mr. Outred asking why only 75 loads were on the purchase order and Mr. Bova was trying to get hold of Mr. Furfari. He asked to make sure they have more trucks for Tuesday since they were going to have the banks sodded then start on the bottom of the Project. Mr. Serrao stated: “We cannot have delays in the process.”

[35] On October 9, 2011, Mr. Bova wrote to Mr. Furfari inquiring about what was going on with Earthco as the “idiots” stopped deliveries. They had received 80 loads but needed another 80 loads.

[36] On October 10, 2011, Mr. Furfari wrote back saying he spoke with Mr. Valente and that the trucks will keep running that morning and that Mr. Furfari would get him the cheque as they had spoken. Mr. Bova thanked him.

[37] On November 15, 2011, Mr. Furfari wrote to Mr. Bova regarding Earthco looking for payment. Mr. Bova replied that Earthco would not see another dime until the issue of the product they supplied being nothing close to what was demonstrated was resolved. He apologized to Mr. Furfari for being placed in the middle of this.

[38] Mr. Furfari asked Mr. Bova for something from the City showing the soil failed. He reminded Mr. Bova that he had him sign off on a condition that once the soil left the yard, Earthco was not responsible for the quality. Mr. Bova wrote him back on November 16, 2011:

To answer your question with respect to “Earthco’s” exoneration form that we asked you to sign; we asked you to sign as based on our methodology of spreading we had no concerns that we would alter the approved sample provided. Ftr, EarthCo drove their trucks to designated areas, dumped their loads and they were spread with a bulldozer in a couple of minutes, it was really that simple, therefore there is no way there (sic) recipe could have been altered. This was witnessed by the C.o.T. and they will confirm that it would be impossible for us to altar the PH value or the particles that would achieve the permeability factors based on the sample that was submitted ands (sic) approved prior to purchasing this product.

Mr. Bova goes on to say that if Earthco’s product complied with the samples there would have been no issue. Mr. Bova was of the view that Earthco took the liberty of using this form to their advantage and thus provided them with whatever came out of their pile.

[39] On November 25, 2011, Mr. Cacciola sent a letter to Earthco and Mr. Valente. He stated that the City, due to the non-conforming topsoil, advised that the soil had to be removed and replaced.

[40] On November 28, 2011, Mr. Bova wrote to Mr. Furfari advising him that he should pay for the pavers used at his home. On November 29, 2011, Mr. Furfari wrote back saying the deal was that Mr. Bova was to pay for the pavers and Mr. Furfari was to pay for the topsoil and as such objected to Mr. Bova’s suggestion. He also wrote: “As far as Earthco is concerned, you called the order in, you accepted the terms and conditions of the P.O. knowing well that the conditions stated that they would not be held liable for the said material after it left their yard. We have yet to see any reports proving the material to be inferior as you claim.”

[41] Mr. Bova advised the same day that he would indemnify Mr. Furfari but that Mr. Furfari had to pay for the pavers as Pine Valley would not due to the inferior soil it had received. Mr. Bova disputed Mr. Furfari’s complaints about the pavers that he had received. Mr. Furfari replied stating, in part: “As you have, I have many emails from you and your staff that transpired between myself, you and Earthco proving well beyond any doubt that you knew the material you were receiving was your responsibility, even after I recommended that you do not take delivery of the material based upon the fact they would not warrant the said topsoil.”

[42] On December 2, 2011, Pine Valley received official notification from the City Consultant that the topsoil at the site was to be removed and replaced.

[43] Pine Valley sent Earthco a letter dated December 5, 2011, advising them of what was happening and their expectation for compensation. Mr. Valente emailed back his response taking the position that Pine Valley had waived the testing of the material before shipment and explicitly assumed all responsibility for the material once it left Earthco’s site.

[44] Pine Valley attempted to persuade the City that amendment of the existing topsoil could be an option, but the City ultimately rejected this option on February 13, 2012.

[45] On February 15, 2012, the City advised that liquidated damages would be applied as of October 15, 2011.

[46] Substantial performance by Pine Valley of the Project was completed on July 27, 2012.

3. Findings at Trial Regarding Liability

[47] Several witnesses testified at trial. Much of that evidence was directed towards proof of damages. The expert evidence, while helpful regarding soils and soil management, was not particularly material to the issue of the Contract. The main witnesses on this issue were Mr. Serrao, Mr. Bova, Mr. Outred, and Mr. Valente.

[48] Mr. Serrao testified that Mr. Petrucci advised him to go with the R Topsoil. Mr. Serrao helped put the Contract together. He testified that he had a conversation about testing for chlorides but in Mr. Serrao’s experience chlorides were a non-issue as any chlorides could be addressed by watering the soil.

[49] Mr. Serrao knew that the three test samples from Earthco were from large piles of soil and he knew that it was likely that the soil would not generally remain static. Piles of soil change day-to-day depending on the weather, when it is loaded on the truck, and when it is spread on the ground. When soil is manipulated, soil composition can change slightly.

[50] When the City Consultant discussed R Topsoil with Mr. Serrao no reference was made to any chlorides. Rather, the City Consultant simply advised that R Topsoil would be acceptable if some organics were mixed in the soil. With respect to another sample, R Topsoil 2PL, the City Consultant stated that this was acceptable if chlorides were less than a certain amount. As such, when Mr. Serrao asked Mr. Outred about potential chloride testing, Mr. Serrao was only referring to the R Topsoil 2PL.

[51] Mr. Serrao agreed that testing is recommended before soil is shipped by the supplier and it would be reasonable and prudent to do so given that soil does change and that the testing done by Earthco in August would be old by October. Mr. Serrao testified that he told Mr. Bova that Earthco recommended fresh testing and this recommendation was not limited to simply testing for chlorides. Mr. Serrao further testified that Mr. Bova was aware of Earthco’s position on risk: that without testing, Pine Valley was assuming the soil at its own risk.

[52] Mr. Serrao testified that Mr. Bova made a business decision to ship right away. Mr. Serrao explained that Pine Valley was up against the time schedule of the City and the City was threatening penalties for missing the deadline. Mr. Serrao testified that he would not have shipped the soil without testing if it was his decision to make. However, the decision was not his to make but Mr. Bova’s and Mr. Bova made a business decision based on the delays in the Project.

[53] Mr. Bova’s testimony contradicted Mr. Serrao, his former employee. Mr. Bova testified that when Mr. Serrao contacted Earthco for the soil, Mr. Serrao came to discuss soil testing with him and that they talked only about chlorides with no mention of other testing. Mr. Serrao contacted Mr. Outred and was advised that Earthco did not have testing on chlorides and if they wanted testing, it would take seven to eight days to complete. Mr. Bova testified that Mr. Serrao was very confident with Earthco. Mr. Bova expected to get R Topsoil based upon the August laboratory tests when he gave instructions to Earthco to deliver it.

[54] With respect to the Contract, Mr. Bova admitted that Mr. Furfari told him that Earthco had a disclaimer in the Contract about the testing. However, Mr. Bova testified that when he discussed clauses 6 and 7 with Mr. Furfari, the discussion was limited to only chloride testing and not the composition of the soil. Mr. Bova was not concerned with chlorides as they could remove the chlorides with water. Mr. Bova testified that they did not need to retest the soil as they already had the results from the previous tests. Mr. Bova testified that Pine Valley was accepting R Topsoil and that Earthco was warranting this soil with the exception of its chloride content, as the only problem discussed was that of chlorides and chlorides only.

[55] Looking at the whole of the evidence, I do not find Mr. Bova’s testimony credible on the issue that the only testing discussed was testing for chlorides and his only intention under the Contract was to waive the testing for chlorides when he instructed Earthco to ship the soil.

[56] Mr. Bova was significantly impeached in cross-examination. On material issues, Mr. Bova was inconsistent, and implausible. I find Mr. Bova to be upset with Earthco regarding what happened. His state of mind is understandable to me. But I find that his recollections of what happened, and his credibility were affected by that state of mind.

[57] I will give some examples of the cross-examination that has led me to this conclusion.

[58] Mr. Bova initially testified that he had some concerns with Mr. Serrao’s competence at performing at the level he was expected to. However, at discovery, Mr. Bova testified that Mr. Serrao was very competent, and his leaving had nothing to do with competence concerns. When questioned about the inconsistency, Mr. Bova’s explanation was not persuasive. Mr. Bova’s inconsistent evidence should be viewed in the context of Mr. Serrao’s testimony at trial which did not always favour Pine Valley.

[59] In another instance, and after some persistent questioning, Mr. Bova testified that the City was concerned about the delays. However, at his discovery, Mr. Bova testified that the City was not at all concerned.

[60] Likewise, Mr. Bova testified with one hundred percent certainty that Mr. Serrao told him that Earthco was recommending only chloride testing, which would take five to seven days, and that Mr. Serrao was not concerned about the chloride risk. At discovery, however, Mr. Bova did not recall discussing chloride testing with Mr. Serrao and did not recall Mr. Serrao saying Earthco was recommending this testing. Mr. Bova explained at trial that he just did not recall this information at the discovery. He went on and tried to explain why this was the case but failed to directly answer simple questions posed to him on cross-examination. When this issue was again revisited in cross-examination, his answers did not get any better as he admitted he never corrected that answer before the trial. This is on a very material piece of evidence. I did not find his answers credible and this part of the cross-examination affected his overall credibility. Moreover, I find it implausible that Mr. Bova’s memory would have improved from the time of the discovery.

[61] Another example is when Mr. Furfari communicated with Mr. Valente about the concerns of shipping the soil without testing. Mr. Bova insisted he was only agreeing to waiving chloride testing and nothing more. However, this is contrary to the language used in the emails. It is implausible to me that a seasoned contractor, as Mr. Bova described himself, would not have objected, or said something to convey that he was not truly accepting the clear and broad wording of the exclusionary clause.

[62] While these reasons are sufficient to reject his testimony on these issues, the final reason for rejecting Mr. Bova’s evidence is that it conflicts with the evidence of Mr. Serrao.

[63] I find Mr. Serrao to be credible and reliable.

[64] Although Mr. Serrao was a witness called by the Plaintiff, he is no longer employed by the Plaintiff and, in my view, was an independent and unbiased witness. Mr. Serrao testified that he left the Plaintiff’s employ on good terms and left as he wanted to be closer to home. I accept this evidence. What I do not accept, is any suggestion made by Mr. Bova that there were other unsavory employment allegations made against Mr. Serrao regarding a female employee. Even though Mr. Serrao was the Plaintiff’s witness, he was never given a chance to respond to these fresh allegations made by Mr. Bova. Alternatively, even if there was any truth to that allegation, Mr. Bova agreed that Mr. Serrao’s leaving was amicable though Mr. Serrao was upset. As such, the circumstances of his leaving would not give rise to any motive on Mr. Serrao’s part to be antagonistic to the Plaintiff at this trial so many years later.

[65] Mr. Serrao was direct and honest. He was also fair. For instance, while he agreed that soil composition could change, he testified that in his experience any change would not be that significant. His testimony was also consistent with the documentary evidence and his recollections were reliable. Finally, his testimony was plausible and made sense.

[66] On the issue of whether it was only chloride testing that was discussed, it makes sense to me that the discussions between Mr. Serrao and Mr. Bova would not be so limited. The issue of chlorides did not affect the R Topsoil that was ultimately chosen by the City Consultant. While I appreciate that R Topsoil was not tested for chlorides, the City Consultant had raised no concerns about the chlorides in this sample or the lack of testing of it. Chlorides affected R Topsoil 2PL, which was not the selected sample. As such, when the issue of testing the R Topsoil before its shipping arose, it makes sense that the discussion would include more than just chloride testing, as chlorides did not affect R Topsoil. In addition, given his position with Pine Valley, Mr. Serrao would certainly have had these discussions with Mr. Bova and not have made any decision on his own about assuming the risk of the soil without testing. Finally, Mr. Serrao’s testimony that Mr. Bova made the decision to ship quickly based on the delays in Project completion, and the possibility of liquidated damages being imposed by the City, is consistent with the circumstances and plausible. I accept it and where Mr. Serrao’s testimony differed from Mr. Bova, I accept Mr. Serrao’s evidence.

[67] I appreciate that Mr. Cacciola confirmed a discussion about chloride testing between Mr. Bova and Mr. Serrao. However, I do not attribute great weight to his testimony because he had little direct involvement in the issues regarding the testing and the purchasing of the soil, he has a bias in favour of the Plaintiff, and his recollection is affected by the passage of time. Even if he did confirm a discussion about chloride testing, such a discussion is only a small part of the events that were transpiring at the time. In that regard, I prefer Mr. Serrao’s evidence.

[68] Mr. Outred testified about the process whereby Pine Valley bought the soil. Mr. Outred was the main contact for Earthco. After getting test reports on the samples, Pine Valley chose R Topsoil. R Topsoil was so named simply because the soil came from a Richmond Hill site. Mr. Outred had recommended to Mr. Serrao that they should wait for testing before shipping. If they were to test for chlorides, they could test for all soil qualities as it took the same amount of time, between five to seven days.

[69] From the date of the August test of R Topsoil, there had been large amounts of soil sold and shipped out from the pile of soil. The characteristics of the soil would have changed from August. Mr. Outred, who was the most knowledgeable about soils at Earthco, testified that soil is not a steady state product but a living organism. Mr. Outred testified that if Pine Valley wanted the soil shipped without testing, he advised it would be shipped at their own risk as there were no up-to-date test results. However, Pine Valley did not want an up-to-date test before shipping.

[70] Mr. Outred testified that as he was driving home late on October 5, 2011, Mr. Bova called him and said Earthco should ship the soil. Mr. Outred said he should speak with Mr. Valente for the financial aspects of the arrangement. He also referred the Pine Valley order to Mr. Valente as Pine Valley did not want to have the soil tested before shipping, a huge concern for Mr. Outred as it had not been tested since August. Mr. Outred agreed that he did not personally tell Mr. Serrao or Mr. Bova that they should do other testing.

[71] Mr. Outred prepared the Contract. He put in clauses 6 and 7 because the soil had not been tested since August and they had no approval from anyone that the soil was suitable. Thus, Earthco had to cover themselves for what could happen. These clauses were not normally put in Earthco’s quotes at the time and the Contract was specially made for this job order due to the circumstances behind it.

[72] Mr. Valente testified that he got involved in the sale at Mr. Outred’s behest due to the credit concerns of Pine Valley and the fact that the soil requested was in want of being retested but Pine Valley desired immediate delivery. Mr. Valente spoke with Mr. Furfari and told him that the testing had been done several weeks prior, that a lot of soil had since been removed from the site, and that the soil needed to be retested. Mr. Valente strongly urged them to retest as the composition of the soil had changed. If they wanted the soil, it would be sold on an as-is basis. In other words, Pine Valley would assume the risk of any changes in the soil composition. Mr. Valente testified that Pine Valley was relying on outdated testing, they wanted delivery the next day, and despite Earthco wanting to retest, Pine Valley was willing to take the risk of delivery without testing.

[73] Chlorides testing was not mentioned at all in Mr. Valente’s discussions. Mr. Furfari said he would speak with Pine Valley and get back to him. After that, Mr. Furfari said he understood the conditions in the Contract, signed off on them, and agreed to proceed up to the credit limit. Mr. Valente sent an email to Mr. Furfari copied to Mr. Outred on October 6, 2011 to make it abundantly clear and to crystallize the conversations they had regarding the soil job and that all risks would be assumed by Pine Valley.

[74] Mr. Valente also testified that he had one conversation with someone from Pine Valley about the need to retest due to the testing being out of date but could not recall that person’s name.

[75] Pine Valley could have waited to test the material but there was no desire to do so by Pine Valley or Mr. Furfari. Mr. Valente testified that it was clear to him that Pine Valley wanted to have the soil immediately on October 6, 2011, or the day after, which could not happen if they needed to retest. Clauses 6 and 7 were put in the Contract at Mr. Valente’s insistence as it reflected the discussions Earthco had with Pine Valley and Mr. Furfari. They agreed to Earthco’s condition and the material was shipped.

[76] I accept the evidence of both Mr. Outred and Mr. Valente. They gave straightforward evidence largely confirmed by the documentary evidence and they were not impeached in cross-examination.

[77] In summary, from the whole of the evidence, I find that Mr. Bova understood that he was waiving all testing of the soil and not just testing for chlorides. He accepted the soil without testing and understood the risk he was taking by accepting the clear exclusionary clause. He did so because Pine Valley felt pressure by the City caused by the delay and the threat of liquidated damages. For economic reasons, Pine Valley did not wish to incur the delay that testing of the soil would involve.

B. ANALYSIS

1. Privity of Contract Between Pine Valley and Earthco

[78] There is no dispute that Pine Valley purchased the topsoil from Earthco. However, there is a complicating factual matter that needs to be explained.

[79] Joe Furfari of a business called Furfari Paving was involved in the purchase as well. Mr. Furfari was a friend of Mr. Bova and purchased up to $40,000 of the topsoil for Pine Valley. From what I gather, Mr. Bova and Mr. Furfari had an informal agreement that Mr. Furfari would do this for and on the instruction of Pine Valley in exchange for Pine Valley purchasing some paving stones from Unilock to be used in Mr. Furfari’s home. The reason for this is not entirely clear. It seems that Mr. Furfari may have benefited from a reduction in price by having Pine Valley purchase the pavers. Mr. Bova testified that Pine Valley had a bad experience with Earthco about a past purchase and therefore Pine Valley did not have an account with Earthco. Thus, Pine Valley wished to use Mr. Furfari’s account in paying Earthco up to $40,000 worth of soil. Thereafter, payments were made by Pine Valley on a cash on delivery basis.

[80] From these facts, there are nuances and complexities in the relationship between Earthco and Pine Valley in this soil purchase that normally would have to be sorted out in determining liability. However, the parties have agreed that the Purchase Order dated October 5, 2011, between Furfari Paving and Earthco (which has been referred to as the “Contract”) is the contract between the Plaintiff and the Defendant at issue in this litigation.[^4]

[81] I also observe that the Contract was signed by Mr. Furfari on October 5, 2011. Some of the communication following that Contract on October 6th seems to show Pine Valley and Earthco negotiating further after the signing as to whether the soil would be delivered without testing. The parties have not made any issue of this. It is not alleged that there were other oral agreements or amendments made subsequent to the Contract. Nor is it argued that Mr. Furfari was not acting on Pine Valley’s instructions at the time of the Contract. I find that the best characterization of the events subsequent to the Contract is that they merely confirm the parties’ intention to adhere to its terms and conditions or the narrative whereby Pine Valley waived its right to the testing of the soil.

[82] In sum, the area of dispute in this case is not whether there was a binding contract and its terms. Rather, it is about the legal meaning and effect of those terms.

2. Application of the Exclusionary Clause

[83] The first issue is whether the Contract was for any soil or R Topsoil. I have no doubt that when this contract is properly interpreted in the factual matrix existing at the time, that the parties agreed to ship soil that had been described to Pine Valley as R Topsoil. While the invoice does not specifically refer to R Topsoil and just refers to soil, there could be no other soil that was bargained for.

[84] This leads to Earthco’s reliance on the exclusionary clauses. Earthco argues that it is not liable for the defective soil relying on two exclusionary clauses in its Contract for the sale of goods with Pine Valley. For ease of reference I repeat the exclusionary clauses:

6. Pine Valley has the right to test and approve the material at its own expense at our facility before it is shipped and placed. Please contact Richard Outred to arrange.

7. If Pine Valley waives its right to test and approve the material before it is shipped, Earthco Soils Inc. will not be responsible for the quality of the material once it leaves our facility.

[85] Earthco relies, via Tercon Contractors Ltd. v. British Columbia (Minister of Transportation & Highways), 2010 SCC 4, 1 S.C.R. 69, on these contractual clauses as exclusionary clauses that are clear and immunize it from liability.

[86] Tercon is the leading case on the enforceability of limited liability clauses. In Tercon, at paras. 122-123, the Supreme Court of Canada laid out the contemporary approach to the evaluation of enforceability (see also: Haliburton Forest & Wildlife Reserve Ltd. v. Toromont Industries Ltd., 2016 ONSC 3767, at para. 49). The court in Haliburton, at para. 50, summarized the Tercon test as follows:

Tercon requires that the court first examine whether the exclusion clause applies to the circumstances. If it does apply, the court must go on to determine if the clause is unconscionable. Finally, the court must examine whether it should decline to enforce the otherwise valid exclusionary clause due to public policy considerations.

[87] In this case, only step one of the Tercon test is at issue: Do the exclusionary clauses apply to the circumstances? Pine Valley does not argue that the exclusionary clauses are unconscionable or inapplicable due to public policy reasons. To answer this question, it is necessary in the present case to consider the exclusion clauses in light of their purposes and commercial context as well as their overall terms.

[88] I am satisfied that clauses 6 and 7 apply to the circumstances at hand. The Contract uses language that directly addresses the situation in this case: Liability for Earthco is meant to be excluded if Pine Valley fails to test and approve the soil before shipping, which Pine Valley failed to do. This case is therefore distinguishable from Tercon, where the court held that the defendant could be liable because its conduct was not within the contemplation of the parties at the time of the agreement.

[89] While unsophisticated, the language is plain and unambiguous in the Contract. When the other parts of the Contract are examined, the parties objectively intended that this simple and direct document bind the terms and conditions of the sale of soil. Resort to the factual matrix confirms this. The parties were negotiating for the sale of a R Topsoil. Pine Valley needed the soil urgently and did not wish to delay for testing. The parties agreed that if Pine Valley did not test the soil before it was shipped, then Earthco would not be responsible for the quality of the material once it left its facility. Such were the objective intentions of the parties.

[90] Pine Valley submits that when read together, the two clauses only refer to testing for chlorides and that this was the only testing it waived. It submits that this was the only test intended by the parties to be the subject of the exclusionary clauses.

[91] I do not accept that. First, the plain wording of the clauses does not limit the testing to chlorides. Second, no restriction on the type of testing is found elsewhere in the Contract nor can it be reasonably inferred from any other portion. The exclusionary clauses refer broadly to the “quality of the materials” and is not limited to soil texture/composition as affected by the amount of chlorides. Third, looking at the factual matrix, I appreciate chloride testing was discussed. However, this was not the only matter referable to the testing or approval of the soil that was being discussed during the process of negotiating and shipping of the soil. I have rejected the evidence of Mr. Bova. As a result, the parties’ discussions were not limited to chlorides in the soil or chloride testing but involved all aspects of the soil that could be subject to testing. This included the texture or the composition of the soil since Pine Valley was interested in the soil that met the City Consultant’s approval. The only testing that was given to Pine Valley dealt with texture/composition. In this factual context, this kind of testing could be the only one contemplated by the parties in the clauses. Thus, the testing contemplated and agreed to by the parties, was all testing; not just testing for chlorides.

3. Section 14 of the SGA

[92] Although the exclusionary clauses are applicable, this still leaves the question of whether these clauses are valid and can be relied upon by Earthco. The Plaintiff relies on s. 14 of the SGA, which implies a condition into contracts for the sale of goods by description that the goods will correspond with the description that was given: Parkhill Excavating Limited v. Robert E. Young Construction Limited, 2017 ONSC 6903, at para. 71. The Plaintiff submits that where SGA s. 14 is involved, any clause exempting a party from the requirements of s. 14 must be clearer than the clauses in the Contract that it had with Earthco.

[93] In Gerald Fridman, Sale of Goods in Canada, 6th ed. (Toronto: Carswell, 2013), at p. 149, Fridman notes that the SGA allows certain terms to be implied into a contract for sale of goods “unless anything is expressly agreed to the contrary by the parties.” Section 14 provides one of those implied terms. Section 14 applies to the sale of goods by description and implies a term of correspondence between the description of goods to be sold and the actual goods received. Section 14 states:

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.

[94] Fridman explains at pp. 150-151 that if the goods do not correspond with their description, there is a breach of the implied condition and the buyer can reject the delivery, or, if he has accepted the goods, sue for damages.

[95] There is a two-part test for establishing whether s. 14 has been breached:

a) Was this a sale by description?

b) If so, did the goods correspond with their description?

A) Was this a sale by description?

[96] To determine whether s. 14 has been breached, first one must confirm that the sale at issue is a sale by description within the meaning of the SGA (see: Thoms v. Louisville Sales & Service Inc., 2006 SKQB 447, 286 Sask. R. 90, at paras. 43-63; Hearn v. McLeod Estate, 2019 ONCA 682, at para. 46). In Varley v. Whipp, [1900] 1 Q.B. 513 (Eng Q.B.), at p. 516 as cited in Fridman, at p. 155, the English court held that a sale is a sale by description where a case involves specific goods, unseen by the buyer and where there was no identification otherwise than by description. The test, enunciated by the House of Lords in Ashington Piggeries v. Christopher Hill Ltd. (1971), 1 All ER 847 (H.L.), at p. 882 and adopted by the Alberta Court of Appeal in Bakker v. Bowness Auto Parts Co. (1976), 1976 ABCA 1131, 68 D.L.R. (3d) 173 (Alta. C.A.), at p. 178, was that of the common intention of the parties:

It does not depend upon what the seller himself thought he was promising, if the words and conduct by which he communicated his intention to the buyer would have led a reasonable man in the position of the buyer to a different belief as to the promise; nor does it depend upon the actual belief of the buyer himself as to what the seller’s promise was, unless that belief would have been shared by a reasonable man in the position of the buyer.

[97] In Thoms, at para. 52, the court pointed out that although there is some ambiguity in the word “description” in s. 14, read within the statutory framework of correspondence, description is to be understood as identification of the goods rather than their quality (at paras. 52-53):

The word "description" in s. 15 [of the Saskatchewan Sale of Goods Act, equivalent to s. 14 of the Ontario Act] refers to terms of the contract which identify the subject matter of the sale. Lord Diplock in Ashington Piggeries Ltd. v. Christopher Hill Ltd., supra, stated at pages 503-04:

The "description" by which unascertained goods are sold is, in my view, confined to those words in the contract which were intended by the parties to identify the kind of goods which were to be supplied. It is open to the parties to use a description as broad or narrow as they choose. But ultimately the test is whether the buyer could fairly and reasonably refuse to accept the physical goods proffered to him on the ground that their failure to correspond with that part of what was said about them in the contract makes them goods of a different kind from those he had agreed to buy. The key to section 13 is identification.

[98] Fridman further clarifies that “[i]f the parties have specified the quality or standard of the goods in their contract this is not part of the description of the goods but a condition (or warranty if it is of lesser importance so that a divergence from such standard would be minor and not major) and an express condition at that (though this might not exclude the operation of other provisions of the Act)”: Fridman, at p. 154. For example, in Ashton Piggeries, the goods at issue were batches of herring meal to be fed to minks. Unbeknownst to both buyer and seller, the herring meal contained a substance toxic to minks. The buyer sued for damages. In holding that there was no breach of the implied condition of correspondence between goods and description under the English equivalent of s. 14, the House of Lords reasoned that “herring meal is still herring meal notwithstanding that it may have been contaminated”: at p. 858. Consequently, “there was no loss of identity” of the goods and s. 14 was not breached: at p. 858.

[99] In Bailey v. Croft, 1931 MBCA 654, [1932] 1 D.L.R. 777 (Man. C.A.), at p. 785, Robson J.A. for the majority observed that handling of the goods by the buyer prior to the sale does not preclude a breach of s. 14:

[C]onsidering the relationship of the parties and their respective knowledge and ignorance of the subject [of the sale, being violins], the fact that the instrument was seen and handled by the plaintiff at the time the defendant made his representations does not exclude the condition implied by s. 15 [now s. 14] or reduce the representation to a mere warranty enforceable only in damages.

[100] In the case at bar, I find that there was a sale by description. Of course, the Contract only refers to soil. Under s. 14, Earthco argues that Pine Valley got what it bargained for: soil. However, in my opinion, when the factual circumstances existing at the time are examined, including the provision by Earthco of test results of three soils, Earthco’s communication to Pine Valley promised that it was selling R Topsoil which had the qualities set out in its test results. It was not promising to sell any soil regardless of composition/texture. The evidence establishes that but for the exclusionary clauses, Pine Valley could fairly and reasonably have refused to accept the soil on the grounds that it did not correspond to the test results of R Topsoil.

B) Was there a breach of the implied condition under s. 14 of the SGA that the goods shall correspond with the description?

[101] Once it is confirmed that the sale at issue is a sale by description, the next step is to determine whether the implied condition of correspondence has been breached. In Bakker, at p. 181, the Alberta Court of Appeal found that the implied correspondence term does not allow for significant variation between the goods as they are described and correspondence to the goods as they are tendered. The test for correspondence was laid out by Lord Diplock in Ashington Piggeries, at p. 884:

[W]hether the buyer could fairly and reasonably refuse to accept the physical goods proffered to him on the ground that their failure to correspond with that part of what was said about them in the contract makes them goods of a different kind from those he agreed to buy.

[102] There are a few steps involved in determining whether the implied condition of correspondence has been breached. Fridman, at p. 156 writes:

Once a sale is a sale by description within the intendment of the section, it is required to ascertained not only the descriptive language by which the goods are identified as the subject-matter of the sale but also the meaning to be attached to the description when it is ascertained (Bakker, supra, at p. 178 per Clement J.A.). Once these determinations have been made, in deciding whether the goods correspond with the description, each case must be decided on its own facts and its own merits (New Hamburg Mfg. Co. v. Webb (1911), 23 O.L.R. 44 (C.A.)).

[103] Although the bar for correspondence between goods and description is relatively high, it is clear here that Pine Valley did not get the soil it bargained for. This was not a minor variation or discrepancy. The test results done at the City Consultant’s insistence after the soil had been spread and the expert evidence presented at trial showed that there was a significant variation between the soil promised and the soil delivered. The variation was such that it led to the problem of ponding in the Project. Thus, I find that the two-part test for s. 14 is met.

c) Remedies for breach of SGA s. 14

[104] In Hearn v. McLeod Estate, 2019 ONCA 682, at para. 45, the Court of Appeal for Ontario explained that the remedy for breaches of s. 14 is set out in s. 51 of the Act. If goods of the wrong description or quality have been delivered by the seller, in breach of an express condition or one of the implied statutory conditions, the buyer may reject the goods and sue for breach of contract, that is non-performance, or he may keep the goods and sue for damages or set off the breach of warranty in diminution or extinction of the price. Fridman also notes that as a general observation, “[r]ecent developments indicate that the courts are taking a less stringent view of the buyer’s conduct. Acts by the buyer that might once have been considered to terminate the right to reject goods and rescind the contract have been treated as inoperative to defeat the buyer’s original contractual and statutory rights” (Fridman, at p. 244).

[105] With respect to damages, the court noted in Parkhill Excavating, at para. 73:

The damages payable as a result of the breach are to be calculated according to the well-established rule in Hadley v. Baxendale (1854), 9 Exch. 341 (Eng. Exch.). Specifically, the measure of damages is the amount required to put the non-breaching party in the position it would have been in had the contract been performed as agreed: see also BG Checo International Ltd. v. British Columbia Hydro & Power Authority, 1993 SCC 145, [1993] 1 S.C.R. 12 (S.C.C.), at para. 12.

4. The Exclusionary Clauses in the Contract and s. 14 of the SGA

[106] Both common law and statute govern exclusionary clauses in these circumstances. It is settled law that in a contract for the sale of goods, the parties are entitled to contract out of any implied terms provided by the SGA or another instrument (see: SGA s. 53; Arora v. Whirlpool Canada LP, 2013 ONCA 657, 118 O.R. (3d) 113, at para. 37; Fridman, at pp. 248-249). This includes the implied term of correspondence between description and goods in the SGA s. 14.

[107] Section 53 of the SGA reads

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.

[108] Fridman, at p. 147, explains that s. 53 does two things. First, it establishes that it is possible to imply terms into a contract for sale of goods beyond those terms that have been expressly agreed to by the parties. Second, it establishes that the implication of a term or terms may be done by way of express agreement or by “the course of dealings between the parties, or by usage, if the usage be such as to bind both parties to the contract.”

[109] Fridman further addresses the legal effects of an exclusion of an express or implied term of a contract. This is primarily a matter of construction of the contract, i.e., determination of whether the parties intended at the time of the contract formation that the clause would apply in the event of a breach of contract; see also Tercon, at para. 7. In terms of principles of interpretation, I must adopt a strict approach when interpreting a contractual provision that allegedly ousts a statutory entitlement under the SGA. Clauses are “strictly construed” against the party in whose favour they are expressed (Fridman, at p. 249):

Exemption or exclusion clauses are strictly construed against the party in whose favour they are expressed, that is, in the context of sale of goods, the seller (Murray v. Sperry Rand Corp. (1979), 1979 ONSC 2133, 96 D.L.R. (3d) 113 (Ont. H.C.). It must therefore be shown by clear, unambiguous words in the contract that the seller has been relieved of any otherwise arising consequence or liability (Keefer Laundry Ltd. v. Pellerin Milnor Corp., (2008) 2008 BCSC 1119, 49 B.L.R. (4th) 222 at 242-245 (BCSC); aff’d 2009 BCCA 273, 94 B.C.L.R. (4th) 205 (B.C.C.A.)). In this connection, reference must also be made to well-known doctrines of the law of contract, under which, in construing the effect of a purposed exclusion or exemption clause, it depends on …[for example] if there are repugnant clauses in a contract, they must be understood in a reasonable, compatible way, which may mean that the exclusion clause is inoperative by virtue of some other inconsistent language in the contract. (Certain citations omitted.) [Emphasis added.]

[110] Over time, the strict construction approach has led the courts to conclude that any and all express or implied terms can, prima facie, be excluded, given that the language presuming to do so is appropriate. In other words, it is possible for a suitably drafted exemption or exclusion clause to oust all responsibility for the quality of goods or liability for performance of the contract, including s. 14 of the SGA.

[111] In IPEX Inc. v. Lubrizol Advanced Materials Canada Inc., 2012 ONSC 2717, at para. 40, the court confirmed that Ontario sales law is clear that if a party means to exclude the statutorily-implied condition of fitness for purpose, it must do so explicitly. Belobaba J. commented at para. 40 that:

Clear and unambiguous language is required to oust an implied statutory condition whether in a consumer or commercial context. According to the Supreme Court [in Syncrude Canada Ltd. v. Hunter Engineering Co., 1989 SCC 129, [1989] 1 S.C.R. 426, at pp. 497-498, approving Chabot v. Ford Motor Co. of Canada (1982), 1982 ONSC 2051, 39 O.R. (2d) 162 (Ont. H.C.), at p. 181], the following provision was sufficiently explicit to oust the statutorily-implied condition of fitness for purpose: "The provisions of this paragraph represent the only warranty of the seller and no other warranty or condition, statutory or otherwise, shall be implied."

[112] Pine Valley is, therefore, correct in its assertion that contractual language ousting a statutory entitlement under the SGA must be clear and unambiguous. Exemption or exclusion clauses are strictly construed against the party in whose favour they are expressed, that is, in the context of sale of goods, the seller: Murray v. Sperry Rand Corp. (1979), 1979 ONSC 2133, 96 D.L.R. (3d) 113 (Ont. H.C.). It must therefore be shown by clear, unambiguous words in the contract that the seller has been relieved of any otherwise arising consequence or liability (Keefer Laundry Ltd. v. Pellerin Milnor Corp., 2008 BCSC 1119, 49 B.L.R. (4th) 222, at pp. 242-245; aff’d 2009 BCCA 273, 94 B.C.L.R. (4th) 205).

[113] The real question to be answered here is whether the terms of the Contract between Pine Valley and Earthco are clear and unambiguous such as to oust the implied term of correspondence under s. 14 of the SGA.

[114] I appreciate that the authorities have taken a strict approach when sellers attempt to rely on exclusionary clauses. For instance, in IPEX, the court found liability for the defendant for breach of statutorily-imposed conditions despite the presence of exclusionary clauses in the contract for sale of goods. In IPEX, the exclusionary clauses only referred to express and implied warranties, not statutorily-implied conditions such as fitness for purpose. The court reiterated that statutory conditions may be excluded but that the exclusion must be explicit. In IPEX, it was unclear why a condition excluding statutorily-implied conditions was left out of the contract. Given the lack of specific exclusion, the court ruled that the statutorily-imposed conditions were not meant to be excluded, and the plaintiff was able to rely on the SGA to claim damages.

[115] The court reached the same conclusion in Haliburton where the parties failed to contract explicitly out of liability for statutorily-imposed conditions, and therefore the plaintiff was entitled to seek damages on those grounds.

[116] In my opinion, Haliburton and IPEX are distinguishable from the present matter because the contract of sale in both cases were more detailed and sophisticated than the Contract. For example, in IPEX the contract specifically mentioned the exclusion of express and implied warranties but failed to mention exclusion of statutorily-implied conditions. This is different from the Contract, which is drafted in very simple language and does not seem to make any mention at all of terms as complex as implied conditions or warranties. Distinguishing these authorities in this fashion is consistent with the well-known principles of interpreting contracts. To ascertain the objective intention of the contracting parties, much depends upon the words used in the exclusionary clause, the other parts of the contract, and the factual matrix in which it was negotiated. Put another way, a way commonly expressed in judicial decisions, each case must be decided on its own facts.

[117] In my view, clauses 6 and 7 of the Contract between Pine Valley and Earthco are clear and unambiguous and oust liability under s. 14 of the SGA for Earthco.

[118] The entry point to this analysis is the plain language of the Contract between the parties. The basic principles of contractual interpretation that apply to exclusion clauses require that the clauses be read with an eye to the overarching purposes and commercial context of the agreement, and not in isolation.

[119] I appreciate the Contract does not explicitly oust statutorily-imposed conditions or terms. Put differently, the clauses do not clearly articulate the intention of the parties vis-à-vis implied terms in the SGA. Nonetheless, in my view, the language chosen by the parties in clauses 6 and 7 is direct and explicit that Earthco is meant to be protected from any liability if Pine Valley fails to test its soil before shipping. The words are clear and unambiguous and say that if Pine Valley fails to test and to approve the topsoil before shipping, Earthco cannot be held responsible for any defects. Pine Valley was given this specific right to test; a right it could exercise at very moderate expense and the test results could have been obtained in approximately a week.

[120] The full agreement is drafted in simple language. Mr. Outred drafted the Contract. There was input from Mr. Valente and Mr. Serrao. Pine Valley agreed to those clauses. Pine Valley then, in a rush to receive its topsoil, waived its right to test and approve the soil. Clauses 6 and 7 are meant to protect Earthco in exactly this situation: Pine Valley holding Earthco liable for defects after having missed a readily available opportunity to test the soil.

[121] It must be remembered that the scope of this contract was narrow. It was for a single purchase of bulk soil. The testing of the soil would reveal little else other than the texture/composition of it and whether it conformed to past results obtained for R Topsoil. The Contract does not mention any remedy if the testing failed. However, when read harmoniously and in context, the parties objectively intended that if the soil failed the testing in Pine Valley’s eyes, the soil could be rejected before it left the facility. Pine Valley was explicitly given the right to approve the soil after testing. This type of remedy implicates the provisions and remedies of the SGA.

[122] The surrounding context of the agreement confirms that the exclusionary clauses were intended to oust liability under s. 14. Pine Valley received soil test results from three soils that Earthco had available. The parties knew the test results were dated. Further, both vendor and purchaser were aware of the inherent nature of the bulk soil at issue.

[123] Indeed, a significant factor in the case at bar is that the goods or product that was sold was soil in large bulk quantities. By its very nature, that soil’s composition is not uniform or unchanging. The defence expert agronomist, Mr. Jack Legg, testified to this effect. I accept his testimony. What is being bought and sold is not a manufactured product where the purchaser can reasonably expect to receive the exact product that is advertised for sale by the vendor. Moreover, Pine Valley was purchasing large quantities of soil from huge mounds of soil removed from the land in development projects. It is unreasonable to expect that such large quantities of soil will not have shifting composition of particle size as that mound is worked through over time. As Mr. Legg testified, the stockpile of soil is not homogenous and will be variable in terms of composition/texture as the pile is diminished. Mr. Serrao was aware of this.

[124] Furthermore, Pine Valley is not an unsophisticated or inexperienced purchaser of soil. It is a commercial purchaser, with years of experience in large scale landscaping, and has bought large quantities of soil before. Mr. Serrao who managed this Project had significant training and experience with different soils. Pine Valley could and did resort to his advice in making the decision to sign this contract. It could also have turned to the City Consultant for advice.

[125] There was only one purpose for the testing of the soil. That purpose was to ensure that it met the requirements of the City. There was a plain and obvious risk that the soil delivered may not be of the texture/composition as in the test results taken earlier. Thus, the purchaser was given an opportunity to test and approve the soil before it was shipped. It was Pine Valley who knew the most about the type of soil that would satisfy the needs of the Project. It had access to the input of the City Consultant. Thus, by clearly and knowingly waiving its right to testing, Pine Valley deliberately assumed the risk that the soil would not meet the requirements of the Project. Put another way, it assumed the risk that the soil would have a different texture/composition from the test results in August. It assumed the risk because it was concerned about the imposition of financial penalties by the City for the delay in the Project. In this commercial context, there is nothing unfair or unreasonable about holding Pine Valley to the terms of its agreement whereby it knowingly assumed this risk in order to gain a financial benefit for itself.

[126] It is clear to me that the purpose of clauses 6 and 7 was to avoid a situation just like this: a situation in which a customer failed to test its topsoil and then attempt to hold Earthco responsible for a loss. Given that Pine Valley, in a rush to receive its topsoil, waived its right to test the batches at Earthco’s facility, it cannot now turn around and create liability for Earthco, having signed a contract that specifically absolved Earthco of liability in these circumstances. It is true that the Contract does not specifically address the implied terms in the SGA. But in these circumstances, it would defeat the plain and clear intention of the parties to read in liability under s. 14 of the SGA, ex post facto.

[127] In summary, the Plaintiff argues correctly that exclusionary clauses must be explicit and clear in absolving the seller of liability. The Plaintiff is assisted by the principle that exclusion clauses are strictly construed against the party in whose favour they are drafted (i.e., the seller’s). Nevertheless, in my view, the exclusionary clauses state unequivocally Earthco will be absolved of liability if Pine Valley fails to test its topsoil order prior to shipping. SGA s. 53 also assists the Defendant in this conclusion. Section 53 states clearly that “where any right, duty or liability would arise under a contract of sale by implication of law, it may be negatived … by express agreement between the parties ...” In my view, clauses 6 and 7 of the Contract are clear and unambiguous and oust the liability for the seller created by s. 14 of the SGA. While the resulting situation for Pine Valley was unfortunate, there is no reason why the exclusionary clauses should apply to this situation. While I have sympathy for the Plaintiff, I find that Pine Valley made something of an expensive but calculated mistake by not testing the topsoil prior to shipping.

[128] This action is therefore dismissed.

5. Damages

[129] If I am incorrect about this conclusion, I will go on and assess the damages to Pine Valley in the following manner.

[130] Pine Valley seeks special damages in the total amount of $596,772.12. This is broken down in its Summary of Costs incurred due to Topsoil Removal. A damages brief contains the various invoices and calculations.

[131] Earthco raises some specific objections to some of the damages claimed. Earthco submits that certain deductions should be made from the total amount of damages.

[132] There are two objections by Earthco to some of the invoices from All Cover, CBM, Dickie Moore, Nature’s Call, and Secure Store that I agree with. The first objection is that some invoices deal with a time period of September and October whereby Pine Valley was still receiving the soil. There is not much dispute that these invoices are not appropriate. The second objection is that there are invoices for a time period beyond May 19, 2012, the date whereby substantial performance should have been completed. Pine Valley has not provided site meeting minutes or memorandums that deal with what was discussed during this period. Based upon the whole of the evidence, I am not satisfied that Pine Valley has proven that this further period of delay beyond May 19, 2012, can be attributed to Earthco. As a result, a total of $13,218.89 should be deducted from Pine Valley’s damages calculation for these invoices.

[133] Earthco objects to a Home Depot invoice of $377.90. I find that this minor amount is appropriate and should not be deducted.

[134] I further find that the invoice of $12,079.66 from Coco Paving is appropriate. The evidence establishes that the heavy trucks used to remove the soil damaged the asphalt. To remove the soil required the trucks to go over the asphalt. This was directly related to the actions of Earthco with respect to the breach of the Contract. The same can be said for the $149.84 invoice from Yorkwest to replace damaged pipes when the soil was removed.

[135] I cannot say the same with respect to the invoice of $1,017.00 from Dutchmaster to replace trees that were damaged by truck traffic. I am not satisfied that damage to the trees was related to the removal of the soil in the absence of evidence negativing careless or negligent driving by the truck drivers. Based upon the photographs of the site and the lack of evidence led on this point, Pine Valley has not established this on a balance of probabilities. This amount should be deducted from Pine Valley’s claim.

[136] The invoices from SGS for lab testing ($195.16) and Zander for re-sodding ($22,029.37) are acceptable and should not be deducted. The testing was required. I am satisfied based upon the invoice and the testimony of Mr. Cacciola that, even in the absence of invoices for both the original sodding and the re-sodding, this was the amount spent by Pine Valley to remediate the site as required by the City.

[137] Earthco objected to damages for the labour of the workers involved in the remediation of the site. The core of the objection is that no time sheets or other documentation confirmed these figures. Of course, this would have been preferable. Given the passage of time and the relocations of the office, these documents were lost. However, I accept the testimony of Mr. Cacciola that he compiled these figures working from the time sheets that he had at the time. There is no reason to doubt the credibility and the accuracy of that evidence. Thus, no deduction shall be made from the damages claimed by Pine Valley with respect to this.

[138] I have a different view of the administrative staff costs. These are costs computed from the salaries and benefits of full-time salaried management. I do not see why their additional duties, such as attending further site meetings, are compensable damages. It did not require any greater expenditure of money on the part of Pine Valley. Thus $5,650 should be deducted.

[139] I agree with Earthco that equipment cost and the flatbed moves should be deducted from the damages. Mr. Cacciola calculated this based upon pricing he obtained from rental companies. However, Pine Valley used the equipment that it owned and operated to do the remediation work. I find that Pine Valley has not proven these damages. First, for obvious reasons, the rental price that they used is not comparable to what it cost to operate these vehicles to complete the work. Mr. Scalisi recognized the difficulties in calculating damages in this way. While I appreciate that there must have been some operating costs, potential opportunity costs, and depreciation in using their equipment to complete the remediation, Pine Valley has not offered the evidence to quantify this head of damages. Thus, the $197,000 will be deducted.

[140] Finally, there is the claim for liquidated damages. There is no doubt that the delay in achieving substantial performance lead to the levying of liquidated damages against Pine Valley. However, not all of this was caused by Earthco. First, the liquidated damages began on October 15, 2011. It was clear that Pine Valley would not have been able to avoid some liquidated damages even if the proper topsoil had been delivered. The deliveries continued until October 19th. Then there was sod that needed to be laid and equipment to be installed. Second, as noted above, the May substantial performance date was not met and the evidence regarding exactly the reasons for this is unclear. I agree with Pine Valley that some of the delay caused in completion of the Project had to do with the unavoidable delay caused by the onset of winter weather. That being acknowledged, the delay from May to July cannot reasonably be attributed to this. Again, I find that Pine Valley has not offered the proof necessary to attribute responsibility for all the liquidated damages paid to the City at Earthco’s feet. As submitted by Earthco, a deduction of $19,500 of liquidated damages from the overall assessment is fair and reasonable.

[141] Thus, totaling all the above deductions, $236,385.89 should be deducted from the damages being sought by Pine Valley.

[142] The total damages to be awarded to Pine Valley are $350,386.23.

[143] If the issue of costs cannot be resolved between the parties, I will entertain written submissions, each one limited to two pages plus attachments. The Defendant shall file within ten days of this decision. The Plaintiff shall file within seven days thereafter. There will be no reply submissions without leave of the court.

Justice S. Nakatsuru

Released: January 31, 2020

COURT FILE NO.: CV-12-445556

DATE: 20200131

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

PINE VALLEY ENTERPRISES INC.

Plaintiff

– and –

EARTHCO SOIL MIXTURES INC., G & L GROUP LTD., RICHARD OUTRED and ORAZIO VALENTE

Defendants

REASONS FOR JUDGMENT

NAKATSURU J.

Released: January 31, 2020

[^1]: Both “composition” and “texture” will be used in my decision to describe the soil. Clay, sand, and silt that form the soil are commonly understood as the “composition” of the soil. However, as the expert evidence revealed, they are actually the same product but of different granular sizes. Thus, “texture” is a more accurate description though the term is not usually associated as a description of a soil.

[^2]: Although reference was made to s. 15 of the SGA during oral submissions, Mr. Scalisi made it clear that he was only relying on s. 14 and not s. 15. Some of the authorities that dealt with s. 15 were only relied on by the Plaintiff for the analysis with respect to interpreting exclusionary clauses. The tort of negligent misrepresentation or negligence was not pursued. In addition, the Defendant submitted that the Plaintiff waived its right to receive the topsoil that it bargained for; the R Topsoil. In submissions, the Defendant did not press this. In my view, the Plaintiff waived its right to test and approve the soil but did not waive any purported right to receive R Topsoil.

[^3]: I note from this email that they clearly were not just talking about chlorides or chloride testing. They were talking about whether the soil was going to be the one that Earthco would stand behind.

[^4]: In any event, it is likely that Furfari Paving was acting as an agent for Pine Valley in this case and that it was authorized to agree to the conditions of the sale of soil.