In Houle v. Knelsen Sand and Gravel Ltd., 2016 CarswellAlta 1582, 2016 ABCA 247, the Alberta Court of Appeal has recently held that a “no representation” clause precluded a party from relying on a pre-contractual representation to rescind the contract.

Background

Houle owned a parcel of land in which Houle believed there were substantial gravel deposits. Houle contacted Knelsen about the potential sale of the land and provided Knelsen with a report of Silvatech Resource Solutions which had assessed the deposits and estimated there might be 444,850 tons of gravel in the land. Based on the Silvatech data, Knelsen’s manager concluded that the lands would yield 457,000 tonnes of gravel. After a series of negotiations, a price of $800,000 was agreed upon for the gravel rights, calculated at $1.60 per tonne for 500,000 tonnes, plus $1 per tonne for tonnage over 500,000.

The formal contract between the parties included the following clause:

“The Purchaser acknowledges that he has inspected the property and that he is purchasing the property as is and that there is no representation, warranty, collateral agreement or condition affecting the property or this offer other than as expressed herein in writing.”

In fact, there was much less gravel in the lands than expected. Knelsen extracted 74,000 tonnes of gravel, and estimated there was 25,000 to 30,000 additional tonnes on site, but that extraction of this amount would not be economical. Knelsen failed to make the final payment under the contract, and Houle sued. Knelsen counterclaimed, alleging breach of contract, negligent and innocent misrepresentation respecting the amount of gravel available in the land, and seeking rescission of the contract.

The trial judge granted rescission of the contract based upon an innocent misrepresentation.

Decision of the Alberta Court of Appeal

The Alberta Court of Appeal allowed the appeal and dismissed the action. Its reasoning was as follows:

  1. The estimate in the Silvatech report was not a representation of “fact”, but an opinion. The Court said:

  “As the trial reasons recognized, no one knew, or purported to know, how much gravel was actually in the land ….Neither the appellants, the respondent, Wapiti or Silvatech ever claimed or represented that there were in fact at least 500,000 tonnes of gravel, and it would have been reckless for any of them to do so. The cases relied on by the respondent are distinguishable. It is one thing to represent that an orchard for sale has 600 trees… and quite another thing to represent the quantity of a mineral buried underground. The Silvatech report can only reasonably be read as stating that, in the opinion of Silvatech and based on its professional analysis, it was more likely than not that there would be about 444,850 tons of gravel in the land. This was clearly an opinion, not a “fact”. Neither Silvatech (nor the appellants, vicariously) ever represented as a fact that there was any particular quantity of gravel present.

  1. The court said that “there is nothing objectionable about the whole agreement clause. It was a legitimate provision (found in most commercial contracts) confirming the scope of the agreement, and allocating the risks between the parties….The risk surrounding the actual quantity of gravel was well known to the parties….The respondent agreed to buy the appellants’ interest in the land “as is”. The appellants insisted on the whole agreement clause, at least in part to confirm that the risk arising from these unknown factors fell on the respondent purchaser.”
  1. The “no representation” clause disclaimed any “representation … affecting the property”. Those words:

“must be a reference to pre-contractual representations; post-contractual representations cannot affect the formation or terms of the contract. The trial reasons appear to assume that the whole agreement clause excludes negligent misrepresentations, but not innocent misrepresentations. There is no basis in law for that interpretation. It deprives the parties of the certainty the whole agreement clause was intended to deliver.”

  1. The “no representation” clause was wide enough to catch the representation about the quantity of gravel present in the lands: “There would be no point in excluding liability for non-actionable representations, and no reason to distinguish between innocent and negligent actionable representations, or between relief in contract or equity. The point of the whole agreement clause is that the obligations of the parties will be determined in accordance with the written terms of the contract, not extraneous negotiations and discussions that have not been reduced to writing, and thus formally acknowledged by the contracting parties.”
  1. There was no substantial failure of consideration: “there was gravel and a right to extract it.”

Discussion

This decision reflects the trend of Canadian courts to hold parties to their contractual deal about limitation and exclusion clauses, absent egregious facts or dealings. In this case, the “no representation” clause directly addressed the commercial risk relating to the amount of gravel in the land, a risk that both parties were aware of. There was nothing unfair in holding that the clause addressed the very risk to which it obviously applied.

It seems doubtful that the “whole agreement” part of the clause (“there is no….collateral agreement or condition …..”) would have been effective in the present circumstances. It was the “no representation” part of the clause (“there is no ….representation, warranty…) that was really applicable. But the present decision shows how powerful a combined “whole agreement/no representation” clause can be: the first part ensures that, so far as contractual claims and remedies are concerned, the parties cannot go beyond the written contract; and the second part ensures that the parties cannot assert tort or other non-contractual rights and remedies that are inconsistent with the contract.

The court’s discussion about whether the pre-contract statements were factual or opinions seems somewhat odd. If the statements were opinions, then they did not amount to representations unless Houle did not believe in their accuracy (and there was no suggestion of that in the reasons of the court). So if the statements were opinions, then the discussion of the “no representation” clause was unnecessary. If the statements were facts, then the discussion about opinions was unnecessary. In either event, part of this decision appears to be obiter dicta.

It is well to remember that a “no representation” clause is not effective against fraud. If pre-contractual statements are made which are fraudulent then the remedies of rescission and deceit will still be available, no matter what the contract says.

See Heintzman and Goldsmith on Canadian Building Contracts, 5th ed., chapter 4, part 3(f)(iii) and chapter 8, part 7.

Houle v. Knelsen Sand and Gravel Ltd., 2016 CarswellAlta 1582, 2016 ABCA 247

Contract – whole agreement and no representation clauses – pre-contractual representations – statements of fact or opinion

Thomas G. Heintzman O.C., Q.C., FCIArb                               October 30, 2016

www.heintzmanadr.com

www.constructionlawcanada.com

This article contains Mr. Heintzman’s personal views and does not constitute legal advice. For legal advice, legal counsel should be consulted.