By Dana Hagg (Associate)
What does it mean to “clean out the ditch”? Does “clean out the ditch” in a contract mean clean out the ditch using construction equipment?
Only if the surrounding circumstances make that clear, according to a September 27, 2023 judgment of the Alberta Court of King’s Bench, dismissing an appeal from an Applications Judge. Otherwise, it may be unenforceably vague.
In Kaup v Landrex Hunter Ridge Inc, 2023 ABKB 542, the Honourable Justice L.K. Harris was asked to interpret whether the Defendants, Landrex Hunter Ridge Inc. and Landrex Inc. (“Landrex”) owned a parcel of land adjacent to property owned by one of the Plaintiffs, Martin Kaup (“Kaup”). Kaup believed that a neglected ditch on Landrex’s land had drainage issues, and Kaup alleged that these drainage issues were causing flooding onto his own property.
The Plaintiffs and Defendants entered into a Master Sales Agreement (the “MSA”). The MSA imposed a variety of terms relating to the sale of unrelated real estate and development licenses, along with a term requiring Landrex to “clean out the ditch” on its land (emphasis added):
Landrex Hunter Ridge Inc. will clean out the ditch located upon the Landrex Hunter Ridge Inc. Land (located south of Township Road 554, Sturgeon County, Alberta and north of the St. Albert Costco store).
After signing the MSA, Kaup repeatedly requested that Landrex clean out the ditch, but he did not specifically take the position that Landrex had to dredge the ditch. Landrex’s consultants advised that the ditch was not the cause of the flooding on Kaup’s property. Despite this, Landrex offered to take alternative drainage management measures like cleaning culverts, mowing, and removing debris or other blockages. Kaup disagreed, and the transaction broke down. Two years later, Kaup pressed the issue again, and insisted that “clean out the ditch” meant “remove the silt and dirt from the ditch by mechanical means.”
Kaup provided emails and handwritten notes from before and after the MSA was signed, much of which was inadmissible. The single piece of admissible evidence with any evidentiary weight merely showed that the parties disagreed about the cause of the flooding, and that Landrex intended further assess what was needed to “clean out the ditch.” While surrounding circumstances will be considered in interpreting the terms of a contract, a court must not allow the surrounding circumstances to overwhelm the actual wording.
Kaup also pointed to the fact that Sturgeon County had mechanically dredged a nearby ditch, which Kaup had also blamed for flooding onto his property. This occurred around the same time as Kaup’s initial complaints regarding Landrex’s ditch. Kaup argued that Landrex knew that Kaup wanted it to “clean out the ditch” in the same manner as Sturgeon County. However, the photographic evidence was unreliable, and “the relevance of the work done by an unrelated party on an entirely different ditch is questionable.”
Landrex argued that “clean out the ditch” is ambiguous because it does not specify “what was to be removed, the volume to be removed, and what was to be achieved.” The Court agreed, holding that “clean out the ditch” is ambiguous because it can mean more than one thing, if looked at from the perspective of a reasonable person reading the contract. “Clean out the ditch” could mean mechanical dredging, but it could also reasonably mean cutting vegetation, picking garbage, or removing obstructions from culverts.
The essential terms of a contract must be reasonably certain. An “agreement to agree” is not enforceable. The “essential” terms of a contract usually include the parties, property, and price. Other terms may be essential, depending on context. For example, a contract to purchase equipment will usually have fewer essential terms than a homebuilding contract. Which terms are considered essential in a construction contract will depend on the type of project. As the Alberta Court of Appeal wrote in Ko v Hillview Homes Ltd, 2012 ABCA 245, with respect to an “agreement to agree” in a design-build contract for a luxury home:
The approach of the [homeowner] has been that he had an idea what he wanted in the house, and that he and the appellant builder would in due course work out plans covering the [remainder] of the house. That might be just a hope that the design ideas of one would happen to please the other. At best, that is a very clear example of an unenforceable agreement to agree. That is especially true here, where the “property” to be built and sold was a very large expensive dwelling house, where personal preferences for a two- or three-generation family, and aesthetics and taste, would be important.
An unenforceably vague contractual term may be “saved” by evidence of the surrounding circumstances. Otherwise, the term – and possibly the whole contract – are void.
To make “clean out the ditch” an enforceable contractual term against Landrex, an objective bystander, informed of the relevant background circumstances, would have to find it “obvious” that Landrex agreed to mechanically dredge the ditch, or to take really any other specific step. But the facts in the Kaup v Landrex Hunter Ridge Inc case did not pass the informed objective bystander test:
While I agree that the phrase “clean out the ditch” seems to contemplate the Defendants taking steps to do something, the issue is defining precisely what those steps are. The inability to reach any conclusion on this point based on the evidence presented by the parties leads to the finding that this provision is too vague to be enforced, and cannot be saved.
If the parties intended that the ditch was to be dredged using mechanical equipment, then the parties could have simply included that requirement in the MSA.
They did not. The Plaintiffs may honestly, but subjectively, believe that dredging is required, but such a requirement is not clear from the surrounding circumstances.
The second paragraph raises a critical point: contracting parties might understand a term to carry a specific meaning. But contracts can go awry. If there is a legal dispute over the contract, and if the actual words of the contract do not support that specific interpretation, there is a risk that a judge will find that the term means something different. Or worse yet, the term or contract could be void, as happened in this case.
Important contractual terms need to be reasonably specific and unambiguous. A contractual term can be a source of potential dispute even where only one of the parties feels a term is important. Judges cannot read minds, so if a party negotiating a contract wants work to be done using a specific method, it is in the best interests of both parties to make sure that method is spelled out within the four corners of the contract.