Corporations involved in buying and selling goods must be aware of the Sale of Goods Act (“SGA”) as failure to do so could result in missing out on potential remedies or potential liability under the SGA.
In 2024 the Supreme Court of Canada In Earthco Soil Mixtures Inc. v. Pine Valley Enterprises Inc., 2024 SCC 20, shed light on an important aspect of the SGA, specifically concerning exclusion clauses and the conditions under which they can be used to contract out of statutory obligations.
Background
In this case, the Supreme Court of Canada resolved a dispute between a buyer and seller regarding the quality of topsoil. The buyer, Pine Valley Enterprises Inc. (“Pine Valley”), had entered into a contract with Earthco Soil Mixtures Inc. (“Earthco”) to supply topsoil for a project with the City of Toronto.
The contract contained two specific provisions related to testing and delivery:
- Pine Valley had the right to test and approve the material before shipment.
- If Pine Valley waived this right, Earthco would not be responsible for the quality of the material once it left their facility.
Pine Valley did not test the topsoil before shipment. After delivery, testing revealed that the topsoil did not match earlier sample results, leading the City of Toronto to demand that Pine Valley replace the topsoil. As a result, Pine Valley sued Earthco for breach of contract, arguing that the topsoil did not match the description provided, in violation of the SGA.
Earthco countered that there was no breach, pointing to the exclusion clause in the contract, which specifically released them from any liability for the quality of the goods once they were shipped.
The Supreme Court’s Ruling
The primary issue on this appeal was about the legal requirements for excluding an implied condition pursuant to s. 53 of the SGA. The Supreme Court clarified that to exclude a statutory condition under the SGA, the contract must clearly express the intention of the parties to do so. The clause must be specific enough to negate or vary the implied right. Furthermore, when interpreting such clauses, courts will consider the parties’ objective intentions, which is shaped by the surrounding circumstances and the terms of the contract.
In this case, the Court found that Pine Valley, by failing to test the topsoil before shipment, accepted the risk that the topsoil might not meet the agreed-upon specifications. The exclusion clause, therefore, relieved Earthco from liability under the SGA.
Implications for Businesses
This decision highlights the importance of clearly drafting contracts that may involve the SGA, especially when it comes to exclusion clauses. It emphasizes that such clauses must be unambiguous and tailored to exclude or vary the statutory rights or obligations implied by the Act.
If your business is entering into contracts that may involve the SGA, or if you are facing a potential claim for breaching its terms, consult with our team at Andriessen and Associates and we will help ensure your contract is properly drafted and/or you understand your legal options.
Ariel Dorfman, Associate Lawyer
adorfman@andriessen.ca