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Contract - Appeals - SOE - Earthco (SCC, 2024). Earthco Soil Mixtures Inc. v. Pine Valley Enterprises Inc. [IMPORTANT]
In Earthco Soil Mixtures Inc. v. Pine Valley Enterprises Inc. (SCC, 2024) the Supreme Court of Canada allows an appeal on the contractual and statutory interpretation of the exclusion provision [SGA s.53] in the Sales of Goods Act.
Here the court is critical of practice emanating from the earlier contractual SOR (of Sattva), focussing on the 'extricable questions of law' issue which it finds has been over-applied to wrongly achieve the non-deferential correctness standard of review when it was not warranted:[28] In Sattva, this Court established that contractual interpretation “involves issues of mixed fact and law as it is an exercise in which the principles of contractual interpretation are applied to the words of the written contract, considered in light of the factual matrix” (para. 50). Accordingly, deference is owed to the trial judge, who is best placed to make findings as to the nature of the factual matrix, and the predominantly applicable standard of review is palpable and overriding error (Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, at para. 21). The search for an extricable question of law is, in my view, not consistent with Sattva’s holding that the interpretation of contracts and agreements are mixed questions of law and fact and that extricable questions of law will be “rare” and “uncommon” (para. 55; Corner Brook (City) v. Bailey, 2021 SCC 29, [2021] 2 S.C.R. 540, at para. 44). Housen expressly admonished that courts should “be cautious in identifying extricable questions of law in disputes over contractual interpretation” because ascertaining the objective intention of the parties, which is the prevailing goal of contractual interpretation, is an “inherently fact specific” exercise (Sattva, at paras. 54-55, citing Housen, at para. 36). The subsequent tendency of some appellate courts to use Sattva to elevate the standard of review, when it was intended to do the opposite, is to be resisted (the Hon. D. Brown, “Has Sattva spawned an era of less appellate deference?” (2023), 41:4 Adv. J. 26, at p. 27).
[29] Although this Court in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23, held that standard form contracts are an exception to Sattva’s ruling that contractual interpretation is generally a question of mixed fact and law, it was nevertheless acknowledged that even in that context, a court can look to “the parties’ reasonable expectations” in order to ascertain the true meaning of a contractual term (para. 95). Consequently, the implication from Ledcor is that where meaningful evidence of the factual matrix does exist and where there is a contract of “utter particularity” due to a unique set of circumstances, the modern contractual interpretation approach from Sattva continues to apply (para. 42, citing Canada (Director of Investigation and Research) v. Southam Inc., 1997 CanLII 385 (SCC), [1997] 1 S.C.R. 748, at para. 37).
[30] The facts of this case establish that the contract in question was one of “utter particularity” — indeed, the exclusion clauses at the centre of this appeal were drafted by the seller in response to the buyer’s particular demand for speedy delivery of the goods without additional testing: because the buyer wanted to avoid incurring liquidated damages. Moreover, there were no errors on extricable questions of law. As I explain in greater detail below, the Court of Appeal read Hunter Engineering as requiring certain formalities not set out in s. 53 of the SGA and which are at odds with contemporary principles of contractual interpretation. By classifying the perceived deficiencies as errors of law, the Court of Appeal sought to create general principles of law that would govern the interpretation of all exclusion clauses ousting implied conditions in a contract of sale, while also diminishing the role of the factual matrix in giving meaning to exclusion clauses.
[31] This derogation from the principles of appellate review laid down by this Court in Housen and Sattva was in error. The question of whether contracting parties came to an “express agreement” under the SGA involves a statutory component; however, where the parties’ contract is in writing, as in this case, it will largely be based on the consideration of the specific written agreement between the parties, the words expressly employed to oust the liability and the surrounding circumstances. Accordingly, an express agreement capable of satisfying s. 53 might not look the same for different sets of parties and is likely to vary depending on who the contracting parties are and what their circumstances are. The inevitable variation between parties’ circumstances means it would be of no use to prescribe a rigidly uniform description of what an express agreement must contain in every instance. This also means that findings by triers of first instance with respect to the factual matrix against which a given contract is struck will continue to be significant when a clause ousting a statutory condition is at issue.
[32] Further, the mere fact that the contractual interpretation in this case involves a consideration of a statutory provision does not automatically mean that a review must be on a correctness standard. While it is the statute that prescribes the requirement for an express agreement, it is still the common law of contracts that informs what an express agreement must look like for a specific set of parties. As a result, the interpretive approach must be flexible enough to account for the parties’ varying commercial circumstances and it follows that the appropriate standard of review must be that of palpable and overriding error, even where the analysis necessarily implicates s. 53 and implied statutory conditions. Thus, it was both the substance of the Court of Appeal’s statements with respect to the perceived deficiencies in the trial reasons and how the Court of Appeal elevated those statements into binding legal requirements in all cases that, in my respectful view, led it into error.
[33] In conclusion, the standard of review for appellate courts concerning the “express agreement” requirement under s. 53 does not deviate from the general rule set down by this Court in Sattva — questions of mixed fact and law remain susceptible to a deferential standard of review, even where the analysis necessarily implicates implied statutory conditions. While errors on extricable questions of law, if properly identified, can be the basis for correctness review, reviewing courts should approach the task of identifying such errors cautiously, and with an eye towards the relative competencies of trial and appellate courts. However, as I explain below, the Court of Appeal did not identify errors on extricable questions of law that justified the application of the standard of review of correctness.
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