Escalation Clauses Might be Void in Ontario

It is a clause that is very risky to use both for the Buyer and the Seller. Many jurisdictions do not permit them at all:

1)    Some think that this type of clause is VOID as against public policy,

2)    Some believe that it is an abuse of the administration of justice, Courts are Court Houses not Auction Houses,

3)    Some feel that the Courts are reserved for interpretation of contracts, and not reviewing the bids and figuring out the winner,

4)    Some believe that this type of bid is uncertain, and therefore lacks the “price”, therefore leaving out one of the essential contract elements, meaning, of course, there is no contract,

5)    Some consider it inappropriate to delve into the confidential documents of third parties for privacy reasons, and thereby the “price offered” is not ascertainable through ordinary legal means.

All in all, this clause has had a storied and varied past in those common law legal jurisdictions throughout the world which have been presented with the proper cases to consider their usage and effectiveness. Another stumbling block in Ontario is s.26 of the Code.

In Ontario, there are no cases before the Ontario Court of Appeal dealing with the legality of the escalator clause, so we just don’t know. It’s a little bit of a gamble to use it. If you decide to use it, you run a substantial risk that the Court will simply conclude that there was no contract, the bid was void and against public policy and therefore there was no contract.

Brian Madigan LL.B., Broker

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