Supreme Court Of Canada Says No Magic Words Needed To Exclude Implied Conditions Under Ontario’s Sale Of Goods Act

On May 31, 2024, the Supreme Court of Canada (the Court) released its decision in Earthco Soil Mixtures Inc. v. Pine Valley Enterprises Inc., 2024 SCC 20, finding that contracting parties can vary or exclude the application of an implied condition under Ontario’s Sale of Goods Act (SGA) by an express agreement in a form of an exclusion clause, without the requirement to include particular “magic words” to be enforceable.

Pine Valley Enterprises Inc. (Respondent) purchased topsoil from Earthco Soil Mixtures Inc. (Appellant) to carry out a municipal project that involved replacing topsoil for water drainage.  The Appellant provided the Respondent with prior laboratory reports from different topsoil samples and cautioned the Respondent against purchasing topsoil without obtaining updated laboratory reports to ensure proper composition. However, the Respondent urgently needed the topsoil and insisted on immediate delivery without obtaining the updated laboratory reports.

The parties’ written agreement included exclusion clauses that stated the Respondent had the right to test and approve the material before it was shipped and, if it waived those rights, then the Appellant would not be responsible for the material’s quality once it left its facility. After delivery and placement of the topsoil at the project site, water ponding was noted and the Respondent had to remove and replace the topsoil. The Respondent brought a claim against the Appellant seeking damages for breach of contract, alleging that it did not receive the topsoil as stipulated in the agreement.

The trial judge dismissed the Respondent’s action, concluding that (i) the parties’ agreement was a sale of goods by description contract within the meaning of section 14 of the SGA, which sets out an implied condition that goods must correspond with their description; and (ii) while the Respondent did not get the topsoil it bargained for, the exclusion clauses operated to expressly contract out of that implied condition pursuant to section 53 of the SGA. However, the trial judge’s decision was set aside by Ontario’s Court of Appeal, which found the exclusion clauses had not “explicitly, clearly and directly” exclude the implied condition under the SGA and were insufficient to shield the Appellant from liability. The judgement was appealed to the Court.

The Court allowed the appeal, holding that the exclusion clauses were an express agreement that negated the statutory implied condition pursuant to section 53 of the SGA. Further, the Court noted that a flexible analysis should be used when interpreting exclusion clauses, focusing on the factual matrix with the goal of ascertaining the parties’ objective intention. In this case, the Court found that the objective meaning of the parties’ express agreement was that the Respondent accepted the risk that the topsoil would not meet the composition specifications if it failed to test the topsoil intended for delivery.

Summary By: Anna Troshchynsky