Canada: Caution: An Entire Agreement Clause May Have Greater Implications Than Expected

At issue in One West Holdings Ltd. v Greata Ranch Holdings Corp. et al. was whether an entire agreement clause which referred to multiple contracts could be used to incorporate an arbitration clause from one of the other contracts. The British Columbia Court of Appeal held that it could despite the fact that the contracts involved different parties.

Decisions

A number of parties, including Concord Okanagan Developments Ltd., entered into a limited partnership agreement (LPA) to form Greata Ranch Developments Limited Partnership. The LPA described a project management agreement (PMA) that was to be entered into between the Limited Partnership and One West Holdings Ltd. Notably, although One West was an affiliate of Concord Okanagan, it was not itself a party to the LPA. The Limited Partnership subsequently entered into the PMA with One West as contemplated in the LPA. When a dispute arose out of the PMA, certain parties to the Limited Partnership attempted to arbitrate the dispute pursuant to an arbitration clause found in the LPA. One West disputed the jurisdiction of the arbitrator on the basis that it did not sign the LPA and therefore was not bound by the arbitration clause. Both parties relied on the entire agreement clause which states:

This Agreement, the Partnership Agreement and the Purchase Agreement and any documents expressly contemplated by the this Agreement, constitute the entire agreement between the parties and/or affiliates of the parties and supersede all previous communications, representations and agreements, whether oral or written, between the parties with respect to the subject matter hereof.

The arbitrator concluded that One West was a proper party to the arbitration as a plain reading of the entire agreement clause in the PMA made clear that the parties intended to embrace the terms of the LPA. On appeal to the Supreme Court of British Columbia, the judge disagreed. He relied on the concept that an entire agreement clause is a legal term of art and therefore it ought to be presumed that the term of art is being used in its correct legal sense. He went on to explain that the "general purpose of entire agreement clauses is to limit the scope of contract interpretation to the four corners of the specified documents". Having noted that an interpretation as suggested by the arbitrator would create redundancy and conflict, he thus concluded that "[w]hile a contract may incorporate terms from other instruments into the contract, the Entire Agreement Clause in the LPA does not incorporate the Arbitration Clause into the PMA".

The Court of Appeal overturned the decision of the judge. The Court agreed with the arbitrator that there was "nothing ambiguous or unclear" about the language in the Entire Agreement clause, and therefore the "judge erred in apparently considering that the "entire agreement" clause as a legal term of art supplemented the clear agreement of the parties that their contract was comprised of the LPA, PMA and PA."

Implications

Parties must be cautious of the language used in an entire agreement clause where the clause refers to multiple contracts as the clause may be interpreted to incorporate terms from the referred-to contracts, and – most importantly – this may be the case even where the parties to the various contracts are different.

This case is also notable for the two observations on drafting offered by the Court at the conclusion of the decision. First, it noted that uniform language for provisions that address the same topic in each of the agreements would have been preferable as this added to the difficult in the case. Second, it explained that it would be preferable if attornment clauses clearly state whether the parties intend to waive the commitment to arbitrate where the parties have agreed to court jurisdiction. In the absence of clarity, Mr. Justice Chiasson stated that he would construe such clauses as merely embracing the court's supervisory role and not waiving the commitment to arbitrate.

Case Information

One West Holdings Ltd. v. Greata Ranch Holdings Corp., 2014 BCCA 67

Docket: CA041162

Date of Decision: February 20, 2014

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