“Entire agreement” or “whole agreement” clauses are commonly used in contracts to limit the scope of contractual obligations and to define the parties’ rights and obligations. These clauses serve as an important tool for reducing the risk of disputes and ensuring that the parties are fully aware of the terms of the agreement.
In Ontario, the enforceability of these clauses has been the subject of many cases. It was recently discussed in a landlord and tenant dispute before the Ontario Court of Appeal. This article will overview the enforceability of entire agreement clauses in Ontario and discuss the legal framework and practical considerations that apply in this context.
Entire agreement clauses are often found in complex commercial contracts as a means to provide contractual certainty and prevent pre-contractual statements from having legal effects. Law Insider provides several examples of these clauses, including:
Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.
Freedom of contract is the underlying principle for the existence and operation of these clauses: parties are generally free to negotiate and agree on the terms of their agreement.
The clause has been found to be enforceable on several occasions before Ontario courts, such as in Gutierrez v. Tropic Intl. Ltd. In the case, the Ontario Court of Appeal held that alleged prior agreements, including any oral agreements, could not survive an entire agreement clause. It is evident that Ontario courts have enforced the operation of entire agreement clauses in the past. However, more recently, the Supreme Court of Canada (“SCC”) has also recognized the importance of examining the circumstances surrounding the parties entering the contract to inform contractual interpretation.
In Sattva Capital Corp. v Creston Moly Corp., the SCC considered the enforcement of an entire agreement clause where one of the parties claimed that the entire agreement clause in its contract with Sattva Capital Corp. prevented Sattva from relying on oral representations made during negotiations. The SCC held that these clauses do not prevent the parties from relying on prior negotiations and that the clause must be interpreted in light of the factual context in which it was agreed to. This case is significant because it established that entire agreement clauses must be interpreted in the context of the agreement as a whole and that they do not prevent the parties from relying on prior negotiations. The case has been widely cited in subsequent Canadian cases and has significantly impacted the interpretation and enforceability of entire agreement clauses in Ontario.
In the recent landlord and tenant case of Spot Coffee Park Place Inc. v. Concord Adex Investments Limited, which involved the interpretation of a commercial lease and pre-contractual negligent misrepresentation, the Court of Appeal affirmed a trial judge’s ruling that an entire agreement clause in a lease did not preclude the respondent’s claim for damages.
The dispute was between Concord Adex Investments Limited (“Appellant”), a residential condominium developer, and Spot Coffee Park Place Inc. (“Respondent”), a café business. After some negotiation, which included Concord making representations that customers would be able to park in an underground parking lot and “there were no impediments to customers being able to access the café,” the parties entered into a lease agreement. The lease contained an entire agreement clause. Several years later, the parties terminated the lease with the Respondent, claiming that it suffered losses due to the Appellants’ representations; customers often had trouble accessing the café due to limited parking options.
In the first instance, the trial judge found in favour of the Respondent and awarded damages. The Appellant appealed, arguing that the “trial judge failed to consider the Lease as a whole and that this amounted to an extricable error of law.” This was based on two articles in the contract which the Appellant claimed addressed customer parking.
On appeal, the Court found that these two articles do not address customer parking, and as such, when read as a whole, the trial judge did not make an “extricable error of law or a palpable and overriding error.” This is despite the inclusion of the entire agreement clause, which the Court found that it “did not preclude the respondent’s claim.”
This case indicates that the courts continue to use the contextual approach developed in Sattva Capital Corp. v Creston Moly Corp. Although entire agreement clauses may not operate as intended, they may still be useful to an extent. As the legal scholar Daniele Bertolini notes in the McGill Law Journal, the clauses may indicate the parties’ intention for the contract to include all terms relevant to the agreement, but “it cannot constitute conclusive evidence of integration.”
In order to ensure that an entire agreement clause is enforceable, it is important to draft the clause in an unambiguous manner. Based on the above case law, some best practices for drafting entire agreement clauses include:
- Specifying all the terms and conditions of the agreement, including any representations and warranties made by the parties during pre-contractual negotiations;
- Excluding any extraneous terms, such as oral representations, course of dealing, and trade usage, that are not part of the agreement;
- Using clear and unambiguous language so that the parties understand the scope of the clause and its impact on their rights.
Despite the courts’ contextual approach to contract interpretation, drafting unambiguous entire agreement clauses to include all representations made in negotiations may offer the best chance to protect a party from future disputes.
The corporate lawyers at Milosevic & Associates have many years of experience defending the rights of business owners in contract disputes at all levels of court. Every legal team member is an accomplished litigator with experience in the courtroom and mediation. Our lawyers are exceptionally adept at thinking on their feet and addressing the unexpected, particularly in a contract dispute context. To learn more about how we can assist you, call us at 416-916-1387 or contact us online.