UNCONSCIONABILITY CAN MAKE LIMITATION OF LIABILITY CLAUSES AND ENTIRE AGREEMENT CLAUSES UNENFORCEABLE

2190322 Ontario Ltd. v. Ajilon Consulting 2014 ONSC 21 (CanLII)

Limitations of liability clauses and entire agreement clauses can be unenforceable because of unconscionability. In determining whether the clause is unconscionable a court will look at various factors such as the sophistication of the parties, the disparity in bargaining power and information, and failure to bring the clause to the attention of the party with less bargaining power. The court ruled that the reasoning of the Supreme Court of Canada in Tercon applies to entire agreement clauses, just as it does to limitation of liability clauses.

Drafters should ensure that both parties to the agreement are made aware of the potential impact of an entire agreement clause. To ensure that the limitation of liability and entire agreement clauses are enforceable, parties should negotiate terms that are not unconscionable.

In 2190322 Ontario Ltd. v. Ajilon Consulting (ON SC 2014), the Superior Court of Justice ruled on an appeal of a decision that the defendant negligently misrepresented that an IT position was available with Loblaw. The defendant provided IT consulting services to corporations by hiring independent consultants to do the work. The plaintiff turned down another contract to accept the position. The defendant represented that the contract would start with Loblaw, but Loblaw never actually signed a contract with the defendant. The court agreed with the trial judge that negligent misrepresentation had occurred. It also agreed with the trial judge that the “entire agreement clause” applied to the representations, but was not enforceable to preclude liability. Applying the reasoning of the Supreme Court of Canada in the Tercon decision, the court decided that entire agreement clauses should be treated in the same way as limitations of liability clauses. The first step was to determine whether the clause applied to the representations. The court found that it did apply. The second step was to determine whether the clause was unconscionable at the time the contract was made. The court held that it was unconscionable because the defendant misled the plaintiff about the certainty of the position, despite not receiving approval from Loblaw, and did not draw the effect of the clause to the plaintiff’s attention, even though the plaintiff was relatively unsophisticated. The step, determining whether the clause should be unenforceable on public policy grounds, was not necessary, but the court stated that it would be unenforceable on public policy grounds as it would prevent recruiting companies from misleading recruited independent contractors that employment had been secured. The appeal was dismissed.

To read the full case on CanLII, click here.