A recent decision of the British Columbia Court of Appeal
highlights the need to ensure that contractual warranties are
carefully drafted and given adequate consideration. The vendor in
this case was held liable for breach of warranty in relation to
material facts it had not disclosed, despite having no knowledge of
those material facts.
In 0759594 B.C. Ltd. v. 568295 British Columbia
Ltd., the purchaser bought 60 acres of land with the
intention of developing the lands as a retail development with a
big-box department store and also as a high-density residential
development. The vendor's Property Documents stated that there
was "approval in principle" for the rezoning.
The purchase contract contained the following warranty:
"Full Disclosure. So far as the Vendor is aware, the Vendor
has disclosed to the Purchaser all material information pertaining
to the Purchased Lands, whether solicited by the Purchaser or not.
Neither this Agreement nor any other document referred to in
this Agreement or any Schedule to this Agreement nor any
statement, schedule or certificate furnished or to be furnished to
the Purchaser pursuant to this Agreement contains or will
contain any untrue statement or omits or will omit to state a
material fact. All material information pertaining to the Purchased
Lands is set out in this Agreement or contained in the Property
Documents." [emphasis added]
Following the close of the transaction, the purchaser learned
that roughly one-third of the property could not be developed due
to riparian issues. The purchaser was unable to obtain zoning for
its proposed high-density residential development on the remaining
land. The purchaser also ran into strong local opposition to the
The purchaser sued the vendor in misrepresentation, and later
added a claim for breach of warranty. The court found that the
vendor did not know about the issues complained of by the
purchaser. As such, the misrepresentation claim fell by the wayside
and the focus became the breach of warranty claim. In interpreting
the warranty clause, the trial judge stated that it would be
extraordinary for a vendor to assume the risk of unknown material
information, and interpreted the warranty accordingly. As such, the
trial judge found the vendor not liable because it was not aware of
the material facts.
The Court of Appeal overturned the decision and held the vendor
liable to the purchaser. The court interpreted the warranty clause
as having two parts. The first part was qualified by the phrase
"[s]o far as the Vendor is aware". However, the second
part (the substance of which was emphasized in italics above) was
not. As such, the court held the warranty clause to require the
vendor to disclose truthfully all material facts about the
property, without any qualification as to the vendor's
The court acknowledged that finding a vendor liable for matters
outside its knowledge could lead to a harsh result. However, the
court noted that the purpose of a warranty is to allocate risk, and
referenced one of its recent decisions where a party was held
liable for a defectively designed product because it had warranted
that there would be no defects due to design, even though the
design defects were due to improper specifications that were
provided by the other party.
This decision emphasizes that commercial parties will be held to
their bargains and can be held liable for matters outside of their
knowledge. Representations and warranties inserted into agreements
must be thoughtfully drafted. Where qualifications are to be made,
the drafter cannot assume that a qualification in one section or
sentence will impact the rest of the document. Unless the agreement
is ambiguous, courts may interpret warranty provisions literally,
even if it may lead to a seemingly unfair result.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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