Edmonton (City) v. TransAlta Energy Marketing Corp. et al., (2008) 441 A.R. 228 (QB)

• Judge: Gill, J.
• Court: Court of Queen's Bench of Alberta (Canada)
• Case Date: June 26, 2008
• Citations: (2008), 441 A.R. 228 (QB);2008 ABQB 426

Edmonton v. TransAlta Energy (2008), 441 A.R. 228 (QB)

MLB headnote and full text

Temp. Cite: [2008] A.R. TBEd. JL.078

The City of Edmonton (plaintiff) v. TransAlta Energy Marketing Corporation, A-C Equipment Services Corp., GKO Design Consultants Inc., Stantec Inc., Stantec Consulting Ltd. (defendants)

(0303 11782; 2008 ABQB 426)

Indexed As: Edmonton (City) v. TransAlta Energy Marketing Corp. et al.

Alberta Court of Queen's Bench

Judicial District of Edmonton

Gill, J.

July 10, 2008.

Summary:

The City of Edmonton purchased a composter from TransAlta Energy Marketing Corp. (TransAlta) which TransAlta had constructed and initially operated. In the purchase and sale agreement, TransAlta represented that the composter was being sold "as is, where is". The agreement permitted a claim to be made within 18 months after closing. The City discovered cracks in the composter's digesters and learned that TransAlta had redesigned the digesters' internal components. The City spent about $2.5 million to repair the cracks and sued, alleging breach of contract, negligence and breach of the Sale of Goods Act. The City also submitted that there was a fundamental breach of contract and that it would be unconscionable to enforce the "exclusionary clause". There were no material facts in dispute. TransAlta applied for summary dismissal.

A Master of the Court of Queen's Bench of Alberta, in a decision reported at 441 A.R. 249; 2008 ABQB 117, granted the application. The City appealed.

The Alberta Court of Queen's Bench dismissed the appeal. It was plain and obvious that the action could not succeed. There were no genuine issues for trial.

Contracts - Topic 2107

Terms - Express terms - Warranty clauses - [See Sale of Goods - Topic 4051 ].

Contracts - Topic 2120

Terms - Express terms - Exclusionary clauses - General - The action involved claims by the City of Edmonton for damages arising from the purchase of a composter from TransAlta - In an article of the purchase and sale agreement, TransAlta represented that the composter was being sold "as is, where is" - The City discovered cracks in the composter's digesters and learned that TransAlta had redesigned the digester's internal components - The City spent about $2.5 million to repair the cracks - The City alleged, inter alia, that there was a fundamental breach of contract and that it would be unconscionable to enforce what the City submitted was an exclusionary clause - TransAlta applied for summary dismissal - A Master granted the application - The City appealed - The Alberta Court of Queen's Bench dismissed the appeal - The term "fundamental breach" was not mentioned in the article and furthermore, the article was not an exclusionary clause, but a negotiated term of the agreement - Even assuming it was an exclusionary clause and construed strictly against TransAlta, it did not advance the City's position because the article was sufficiently broad and clearly worded so as to exclude the alleged design alterations or defects - See paragraphs 76 to 77.

Contracts - Topic 3536

Performance or breach - Breach - By nondisclosure of material facts - The action involved claims by the City of Edmonton for damages arising from the purchase of a composter from TransAlta - In article 4.1 of the purchase and sale agreement, TransAlta represented that the composter was being sold "as is, where is" - The City alleged, inter alia, breach of contract - The City did not allege that any specific clauses of the agreement were breached but that it did not get what it bargained for; namely, a composter with "Bedminister technology" - It referred to alleged non-disclosure by TransAlta of the internal redesign of the composter - TransAlta applied for summary dismissal - A Master granted the application - The City appealed - The Alberta Court of Queen's Bench dismissed the appeal - Firstly, there was no evidence to support the alleged non-disclosure - In fact, the evidence was to the contrary - The City was given full access to information concerning the composter - A physical inspection of the composter's interior was not possible, but the City proceeded with the purchase - Secondly, the City's submission was not maintainable in the face of article 4.1 - The type of wording in article 4.1 covered hidden defects that were discovered later - Further, the clear wording of a "condition of assets" article precluded any claims for misrepresentation relating to design - See paragraphs 68 to 75.

Contracts - Topic 3735

Performance or breach - Fundamental breach - Effect of exclusionary clause - The City of Edmonton paid $97 million for a composter, and incurred repair costs of approximately $2.5 million - Those costs were the subject matter of this action - The City alleged, inter alia, fundamental breach - TransAlta applied for summary dismissal - A Master granted the application - The City appealed - The Alberta Court of Queen's Bench dismissed the appeal - There was no fundamental breach of the agreement - The court began its analysis by referring to the description of "fundamental breach" as set out by Wilson, J., in Hunter Engineering Co. v. Syncrude Canada Ltd. (1989) (S.C.C.) - The alleged breaches did not go to the "the root of the contract" - Nor could it be said that "the very thing bargained for has not been provided" or that "the foundation of the contract has been undermined" - The City bargained for and received a working composter - Even if there was a fundamental breach, the wording of the article that "the assets are being sold by the vendor to the purchaser 'as is, where is'" was broad enough to exclude recovery for such a breach - The fact that the article did not specifically refer to a fundamental breach did not prevent it from applying - See paragraphs 78 to 80.

Contracts - Topic 4005

Remedies for breach - Negligent breach - Availability of tort action - The City of Edmonton paid $97 million to TransAlta for a composter, and incurred repair costs of approximately $2.5 million - Those costs were the subject matter of this action - In article 4.1 of the purchase and sale agreement, TransAlta represented that the composter was being sold "as is, where is" - The City alleged breach of contract, negligence, and breach of the Sale of Goods Act - In their written and oral submissions, the City also argued that there was a fundamental breach of contract and that it would be unconscionable to enforce the exclusionary clause - TransAlta applied for summary dismissal - A Master granted the application - The City appealed - On appeal, TransAlta submitted that the City expressly negotiated agreed-upon terms respecting the condition of the composter and the limitations upon TransAlta's liability in the agreement, and could not recover in tort - TransAlta relied on Central Trust Co. v. Rafuse (1986) (S.C.C.) - The Alberta Court of Queen's Bench agreed with TransAlta - The language of article 4.1 of the agreement was clear and unambiguous - The City took the composter "as is, where is" - The principles in Central Trust Co. applied to prevent any recovery in tort - See paragraphs 90 to 92.

Courts - Topic 8442

Provincial courts - Alberta - Masters - Appeals from - A plaintiff appealed from a decision of a Master that granted the defendant summary dismissal of the plaintiff's claim - On appeal, the Alberta Court of Queen's Bench noted the standard of review - "Pursuant to Rule 500 of the Alberta Rules of Court, an appeal from a Master in Chambers to a Justice of the Court of Queen's Bench is a hearing de novo. The Court may substitute its own decision without applying any standard of review" - See paragraph 64.

Equity - Topic 1121

Equitable relief - Contracts - Unconscionability - General - The action involved claims by the City of Edmonton for damages arising from the purchase of a composter from TransAlta - In article 4.1 of the purchase and sale agreement, TransAlta represented that the composter was being sold "as is, where is" - TransAlta applied for summary dismissal - A Master granted the application - The City appealed - In its oral and written submissions, the City argued that application of the exclusionary clause would be unconscionable - The City conceded that the case did not involve unequal bargaining power, but referred to the Alberta Court of Appeal decision in Plas-tex Can. Ltd. v. Dow Chemical (2002), where the defendant knew that it was selling a defective product to the plaintiff and attempted unsuccessfully to protect itself with a limitation of liability clause - The Alberta Court of Queen's Bench held that the claim of unconscionability was bound to fail - The facts in Plas-tex were very different from the evidence in this case, because there was no evidence that TransAlta behaved in a deceitful manner - None of the four elements necessary for unconscionability were present - See paragraphs 85 to 89.

Practice - Topic 5705

Judgments and orders - Summary judgments - Requirement that question at issue be beyond doubt - [See Practice - Topic 5719 ].

Practice - Topic 5719

Judgments and orders - Summary judgments - To dismiss action - The City of Edmonton purchased a composter from TransAlta Energy Marketing Corp. (TransAlta) which TransAlta had constructed and initially operated - In article 4.1 of the purchase and sale agreement, TransAlta represented that the composter was being sold "as is, where is"- The agreement permitted a claim to be made within 18 months after closing - The City discovered cracks in the composter's digesters and learned that TransAlta had redesigned the digesters' internal components - The City spent about $2.5 million to repair the cracks and sued, alleging breach of contract, negligence and breach of the Sale of Goods Act - The City also submitted that there was a fundamental breach of contract and that it would be unconscionable to enforce the "exclusionary clause" - There were no material facts in dispute - TransAlta applied for summary dismissal - A Master granted the application - The City appealed - The Alberta Court of Queen's Bench dismissed the appeal - The action could not succeed - There were no genuine issues - It was plain and obvious that any breach of contract claim could not succeed - The claim of unconscionability was bound to fail - Article 4.1 was clear and unambiguous and applied to prevent any recovery in tort - Section 54 (exclusion of terms) of the Sale of Goods Act was a complete answer to the City's claim under that Act - The City failed to give the requisite notice - See paragraphs 67 to 94.

Sale of Goods - Topic 101

General - Application of legislation - General - The City of Edmonton purchased a composter from TransAlta Energy Marketing Corp. (TransAlta) - In article 4.1 of the purchase and sale agreement, TransAlta represented that the composter was being sold "as is, where is"- The City discovered cracks in the composter's digesters and learned that TransAlta had redesigned the digesters' internal components - The City spent about $2.5 million to repair the cracks and sued, alleging, inter alia, breach of the Sale of Goods Act - There were no material facts in dispute - TransAlta applied for summary dismissal - A Master granted the application - The City appealed - The Alberta Court of Queen's Bench stated that it was "extremely doubtful" that the Sale of Goods Act applied to the sale of the composter - In any event, s. 54 (exclusion of terms) of the Act was a complete answer to the claim - In addition, several articles in the agreement provided that there would be no liability of TransAlta to the City beyond the terms of the agreement - See paragraph 93.

Sale of Goods - Topic 4051

Conditions and warranties - Warranties - General - The City of Edmonton purchased a composter from TransAlta Energy Marketing Corp. (TransAlta) - In the purchase and sale agreement, TransAlta represented that the composter was being sold "as is, where is" - Article 4.3 provided that TransAlta's warranties would last 18 months after the closing date - Article 5.1 set out that the City would give notice to TransAlta of any inaccuracies on misrepresentation of the warranties during that period - The City discovered cracks in the composter's digesters and learned that TransAlta had redesigned the digesters' internal components - The City spent about $2.5 million to repair the cracks and sued, alleging, inter alia, breach of contract - The City failed to give the requisite notice - TransAlta applied for summary dismissal - A Master granted the application - The City appealed, submitting, inter alia, that under s. 7(2) of the Limitations Act, article 4.3 was invalid because the limitation period was shorter than the statutorily prescribed period of two years - The Alberta Court of Queen's Bench held that the submission was without merit - The article was "simply" a clause which put limits on the warranties provided under the agreement; it did not address the issue of the limitation period to commence an action - See paragraphs 81 to 83.

Sale of Goods - Topic 4068

Conditions and warranties - Warranties - Disclaimer - "As is" clause - [See Contracts - Topic 2120 ].

Sale of Goods - Topic 4361

Conditions and warranties - Latent defects - General - [See Contracts - Topic 3536 ].

Cases Noticed:

Chin (Gordon) Professional Corp. v. Dental Management Systems - DMS Ltd. (2001), 305 A.R. 187 (Q.B.), refd to. [para. 29].

Syncrude Canada Ltd. et al. v. Hunter Engineering Co. and Allis-Chalmers Canada Ltd. et al., [1989] 1 S.C.R. 426; 92 N.R. 1; 1989 Can LII 129, dist. [para. 30].

Guarantee Co. of North America v. Gordon Capital Corp., [1999] 3 S.C.R. 423; 247 N.R. 97; 126 O.A.C. 1, refd to. [para. 31].

Ronak v. Jones et al. (1995), 177 A.R. 206 (Q.B.), refd to. [para. 34].

Plas-Tex Canada et al. v. Dow Chemical of Canada Ltd. et al. (2004), 357 A.R. 139; 334 W.A.C. 139; 2004 ABCA 309 (C.A.), dist. [para. 39].

Busse Farms Ltd. v. Federal Business Development Bank (1998), 172 Sask.R. 133; 185 W.A.C. 133 (C.A.), refd to. [para. 48].

Holtby's Design Service Inc. v. Campbell Chevrolet Oldsmobile Inc., [2004] O.J. No. 183 (C.A.), refd to. [para. 49].

Prenor Trust Co. of Canada v. Nunn (1998), 214 A.R. 1 (Q.B.), refd to. [para. 51].

Domtar Inc. v. ABB Inc. et al. (2007), 369 N.R. 152; 2007 SCC 50, refd to. [para. 54].

Cain v. Clarica Life Insurance Co. (2005), 384 A.R. 11; 367 W.A.C. 11; 2005 ABCA 437, refd to. [para. 56].

Central Trust Co. v. Rafuse and Cordon, [1986] 2 S.C.R. 147; 69 N.R. 321; 75 N.S.R.(2d) 109; 186 A.P.R. 109, appld. [para. 58].

Toffoli v. Rozenhart et al. (1992), 1 Alta. L.R.(3d) 104 (Q.B. Master), refd to. [para. 59].

United Utility Workers Association of Canada et al. v. TransAlta Corp. et al. (2004), 354 A.R. 58; 329 W.A.C. 58 (C.A.), refd to. [para. 64].

Murphy Oil Co. et al. v. Predator Corp. et al. (2006), 384 A.R. 251; 367 W.A.C. 251; 55 Alta. L.R.(4th) 1; 2006 ABCA 69, refd to. [para. 65].

Lameman et al. v. Canada (Attorney General) et al. (2008), 372 N.R. 239; 429 A.R. 26; 421 W.A.C. 26; 2008 SCC 14, refd to. [para. 66].

Tercon Contractors Ltd. v. British Columbia (Minister of Transportation and Highways) (2007), 249 B.C.A.C. 103; 414 W.A.C. 103; 2007 BCCA 592, appld. [para. 80].

Counsel:

Darrell Lopushinsky and David Woo (City of Edmonton Law Branch), for the plaintiff;

James L. Lebo, Q.C., and Mr. Woo (McLennan Ross LLP), for the defendants.

This appeal was heard on June 26, 2008 by Gill, J., of the Alberta Court of Queen's Bench, Judicial District of Edmonton, who delivered the following reasons for judgment dated July 10, 2008.