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CONTRACTS: CASES AND COMMENTARIES TENTH EDITION Edited by STEPHANIE BEN-ISHAI Professor of Law, Osgoode Hall Law School, York University and DAVID R. PERCY, Q.C. Borden, Ladner, Gervais Chair in Energy Law and Policy, University of Alberta First Seven Editions edited by: Christine Boyle and David Percy # 2018 Thomson Reuters Canada Limited NOTICE AND DISCLAIMER: All rights reserved. No part of this pub- licationmaybereproduced,storedinaretrievalsystem,ortransmitted,inany form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written consent of the publisher (Thomson Reuters Canada, a division of Thomson Reuters Canada Limited). ThomsonReutersCanadaandallpersonsinvolvedinthepreparationandsale of this publication disclaim any warranty as to accuracy or currency of the publication. 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ISBN 978-0-7798-8642-5 (2018 edition) Printed in United States by Thomson Reuters THOMSONREUTERSCANADA,ADIVISIONOFTHOMSONREUTERSCANADALIMITED OneCorporatePlaza CustomerSupport 2075KennedyRoad 1-416-609-3800(Toronto&International) Toronto,Ontario 1-800-387-5164(TollFreeCanada&U.S.) M1T3V4 Fax1-416-298-5082(Toronto) Fax1-877-750-9041(TollFreeCanadaOnly) [email protected] CONTRIBUTORS StephanieBen-Ishai ofOsgoodeHallLawSchool Chapters1and13 TamaraBuckwold oftheFacultyofLaw,UniversityofAlberta Chapters3and6 RichardF.Devlin oftheFacultyofLaw,DalhousieUniversity Chapter10 RobertD.Flannigan oftheFacultyofLaw,UniversityofSaskatchewan Chapters5and11 JohnD.McCamus ofOsgoodeHallLawSchool Chapter7 DavidR.Percy oftheFacultyofLaw,UniversityofAlberta Chapter1 MichaelPratt oftheFacultyofLaw,Queen’sUniversity Chapters4,9and12 MichaelIlg oftheFacultyofLaw,UniversityofCalgary Chapter8 RobertWai ofOsgoodeHallLawSchool Chapter2 iii PREFACE The publication of the tenth edition of this casebook marks the 40th anniversary of its first appearance. The book originally developed from gatherings of contracts teachers during the annual meetings of the Canadian Association of Law Teachers in the mid-1970s. It was inspired by a widely held feeling that there was a need for a national book that might command acceptance across the common law provinces. Initially, Janet Baldwin of the University of Manitoba gathered materials from a number of teachers and thesewereused,inwholeorinpart,atseverallawschoolsindifferentpartsof the country. Law teachers enjoyed working from a common set of materials, and at the 1977 meeting of C.A.L.T. in Fredericton, New Brunswick, Christine Boyle and David Percy were charged with the task of organizing portions of the existing materials and adding new chapters to create a publication suitable for use across the country. For over 30 years, this book was co-edited by Professor Christine Boyle. Although Christine has retired from law teaching, her distinctive approach is stillevidentthroughoutthebook,particularlyintheIntroductiontotheStudy oftheLawofContracts.Thelistofcontributorstothisbookoverthepast40 years reflects generations of Canadian contract law scholars. This edition guarantees a degree of continuity, as we are fortunate to have been able to produce the book with the same set of contributors as the ninth edition. As editors, we continue to play two roles. As in the past, we have attempted to introduce a degree of uniformity to the various sections of the book without affecting the flavour of each individual contribution. We have significantly cut the undergrowth of questions and notes throughout and added some new ones where necessary. We have edited chapters in order to avoid repetition, to include cross-references, and to keep the size of the book within reasonable bounds. One of the benefits of this type of co-operative casebook is to expose students to slightly different approaches to contracts problems.Inlinewiththerequirementsimposedbymanylawfacultiesacross the country, we continue to refine the learning objectives at the beginning of each chapter to guide the student’s focus. The learning objectives have provided a more integrated feel to the casebook, although individual Contracts teachers may direct students to use these objectives in ways that fit their own pedagogical styles. Thiseditionisprobablythefirsttointroduce somefundamentalchanges in the Canadian law of contracts. Most importantly, Chapter 7 deals with Bhasin v. Hrynew and the introduction of an organising principle of the duty of good faith that does not depend on the parties’ intentions. The book also reflects the emergence of a distinctive approach to the interpretation of contracts adopted by the Supreme Court of Canada. Interpretation is dealt withinChapter 7,and theCourt’snewapproach isneatly summarized inthe extractfromLedcorConstructionLtd.v.NorthbridgeIndemnity InsuranceCo. in Chapter 8. Chapter 9 uses an extract from Canada (Attorney General) v. v PREFACE vi FairmontHotelsInc.todealwiththeinstabilityinthedoctrineofrectification that had developed as parties attempted to re-cast transactions in the light of unanticipated tax consequences. There is also a focus on areas in which Canadian courts appear to be taking a distinctive approach to the law of contracts. Chapter 2 consolidates the major changes of previous editions relating to technology, globalization, and tendering. Chapter 3 considers developments in the role of good faith in negotiation. Chapter 4 raises the problems posed by electronic contracts in respectoftherequirementofwriting.Chapter8emphasizestheimportanceof the role of Tercon Contractors Ltd. v. British Columbia in the judicial control of exclusion clauses. Chapter 9 explores the continuing signs of life in the doctrine of equitable mistake. Chapter 10 takes into account emerging European and international norms in contract law. Finally, Chapter 13 deals with the burgeoning level of appellate activity on aggravated damages for mental distress and punitive damages. Readers will also find an increased emphasis throughout the book on the intersection between consumer protection law and contract law. The book continues to be designed primarily as a teaching tool rather than a reference work. Accordingly, we have generally given limited citations inthebodyofthetext,withmoreextensivecorrelativecitationsintheTableof Cases. The materials and their organization are somewhat traditional, for they are designed to constitute the basis of a core course in contracts. We do not attempt to imbue the reader with a particular philosophy of the law of contractsandindeedanyattempttodosowouldbefruitlessgiventhenumber and variety of our contributors. Rather we try to note a number of different approachestocontractsthroughoutandtoleavescopeforindividualteachers topursuetheirownthemeswiththesematerialsasasolidbase.Thebookis,of course,designedforuseinallcommonlawcoursesandasaresultweinclude from different jurisdictions statutory references where appropriate and try to avoid concentration upon a particular province when excerpts from statutes areincludedinthematerials.Itishopedthatthis willawakenstudents tothe increasingly different legislative trends that have been adopted across the countryandcreateanawarenessoftheapproachesofjurisdictionsotherthan the one in which they are studying. In reflecting these important developments, we hope that we have retained the features of earlier editions, which have commanded broad acceptance at law schools that focus on the common law. Stephanie Ben-Ishai wishes to acknowledge the detailed and thoughtful contribution of her research assistant, Olha Senyshyn, who improved the manuscript immeasurably. She would also like to thank her son, Larry, who willstartschoolasthiseditiongoestopress,andisthemostinspiringteacher, student, and son one could ask for. David Percy wishes to acknowledge the valuable work done by his research assistant, Alexandra Mackenzie, as well as helpful comments and vii PREFACE suggestions from his colleagues at the University of Alberta, particularly Shannon O’Byrne, Tamara Buckwold, and Mitchell McInnes. Finally, we both appreciate the continued support of our publisher. Stephanie Ben-Ishai David R. Percy Toronto and Edmonton April 9, 2018 ACKNOWLEDGMENTS The Editors are grateful to the following persons and organizations for permission to reproduce the materials or excerpts indicated below. Alberta Reports Maritime Law Book Ltd. Fredericton, New Brunswick All England Law Reports Butterworth & Co. (Publishers) Ltd. London, England American Law Institute’s Restatement of the Law, Second: Contracts The American Law Institute Philadelphia, Pennsylvania # 1979 by The American Law Institute. Reproduced with permission. Atlantic Provinces Reports Maritime Law Book Ltd. Fredericton, New Brunswick Canadian Insurance Law Reporter C.C.H. Canadian Limited North York, Ontario Cheshire, Fifoot & Furmston Law of Contract, 12th edition (1991) M.P. Furmston The Butterworths Division of Reed Elsevier (UK) Limited London, England Commercial Fiduciary Obligation R.Flannigan Alberta Law Review Faculty of Law, University of Alberta Edmonton, Alberta Commonwealth Law Reports The Law Book Company Limited New South Wales, Australia A Contract William E. Conklin in Richard F. Devlin ed. Canadian Perspectives on Legal Theory (1991) Emond Montgomery Toronto, Ontario ix ACKNOWLEDGEMENTS x Contracts—Innominate Terms: Contractual Encounters of the Third Kind Allan C. Hutchinson and John N. Wakefield Canadian Bar Review University of New Brunswick, Faculty of Law Fredericton, New Brunswick Developments in Contract Law B.Reiter and K. Swan Supreme Court Law Review 1978-79 Term Butterworths Canada Ltd. Markham, Ontario Reprinted with permission of Butterworths Canada Ltd. 1980 Do We Need a Parol Evidence Rule? Stephen M. Waddams Canadian Business Law Journal Toronto, Ontario Dominion Law Reports Canada Law Book Aurora, Ontario Donor Insemination Agreement Barbara J. Findlay Dahl findlay Connors Vancouver, British Columbia Economic Analysis of Law, 6th edition (2003) and 7th edition (2007) Richard A. Posner Little, Brown Toronto, Ontario English Reports Sweet & Maxwell Ltd. London, England The Judicial Control of Contractual Unfairness David Tiplady and Modern Law Review Blackwell Publishers Oxford, England The Law of Contract, 2nd edition (1993) and 3rd edition (1997) Hugh Collins The Butterworths Division of Reed Elsevier (UK) Limited London, England The Law of Contract, 9th edition (1995) G.H. Treitel