A Construction Law Update
Vendors and purchasers alike should always exercise caution when preparing and agreeing to purchase and sale agreements as the specific language they use will generally be upheld by courts.
In July 2008, in The City of Edmonton v. TransAlta Energy Marketing Corporation et al., the Alberta Court of Queen’s Bench upheld the decision of Master Smart and dismissed the City of Edmonton’s lawsuit against TransAlta for a defective composter.
The City purchased the industrial-sized composter from TransAlta after a thorough inspection of the facility by experts hired by the City. The parties agreed in the sale agreement that, subject to certain time-limited representations, the composter was sold “as is, where is.” Unknown to the City, TransAlta had earlier made a decision, based on technical advice, to alter the design of the composter so that baffles located inside the digesters would disintegrate and disappear a few years into operation.
After the sale was completed, during regular operation, the baffles deteriorated causing internal damage to the composter. The City brought a claim against TransAlta and companies involved in the design of the composter. Though filed before the limitation period expired, timely notice of a claim based upon TransAlta’s representations in the sale agreement was not given by the City. Justice Gill of the Court of Queen’s Bench summarily dismissed the claim against TransAlta.
The Court held that both the City and TransAlta were sophisticated commercial parties. The City had full access to information concerning the design, construction and operation of the facility before the sale was concluded. The City considered the risks of buying a used composter and decided to proceed with the purchase on an “as is, where is” basis. The Court gave effect to the “as is, where is” term, and stated it protected TransAlta from hidden defects discovered at a later date. Moreover, the City had failed to give notice of the problems within the 18 month warranty period in the agreement.
It is apparent from this case that courts will endeavour to uphold the strict terms of an agreement made between sophisticated commercial parties. Parties involved in buying and selling assets should make sure they pay close attention to the terms and conditions they agree upon.
James Lebo, Q.C. and Warren Woo of McLennan Ross LLP represented TransAlta.
This update is a general overview of the subject matter and cannot be regarded as legal advice. Please contact Corbin Devlin at cdevlin@mross.com, Jim Lebo at jlebo@mross.com, or any member of our Construction Law Practice Group for advice on this or any other construction law topic. |
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