In challenging economic times, businesses may seek an economic advantage by not providing accurate or complete information to their suppliers or customers. Although decided some time ago, the following case highlights some of these risks associated with this type of conduct.

Telus Corp. (“Telus”), a leading telecommunication company in Canada, was sued by 901126 Alberta Ltd (“901126”), a wholesaler of telecommunication services, for allegedly breaching an agreement. 901126 argued that the terms of the contract required Telus to provide it with long distance services at a guaranteed rate for three years. Telus had begun offering the services to 901126 on May 01, 2002, but then terminated the agreement on May 10, 2002. It argued that 901126 had failed to disclose that it was a wholesale company rather than a retail company. This information was, according to Telus, material to the formation of the contract since Telus offers different long distance rates to various types of customers. A wholesale company that intends to wholesale telecommunications services gets higher rates while a retail company gets lower rates.

Initially 901126 won a temporary injunction requiring Telus to continue providing services until June 10, 2002. Pursuant to provisions in the contract, Telus then promptly terminated the agreement on June 27, 2002. 901126 sought to collect damages for lost revenue due to Telus’s alleged breach of the contract. Telus counter-claimed for the funds it had lost in providing services to 901126 which had to be sourced from other providers. The Court examined whether Telus had the contractual right to terminate the contract on May 10th and on June 27th.

In its decision, the Court expectedly emphasized that the issue dealt with the proper interpretation of the terms of the contract. Since the contract required Telus to provide a set rate for services for three years but then also allowed it to cancel the contract upon giving thirty days notice, 901126 asserted that there was an ambiguity in the contract that could only be resolved by considering the “factual matrix” surrounding the contract. The defendants, on the other hand, argued that there was a clear, unambiguous agreement; therefore, the parol evidence rule barred any extrinsic evidence which would vary the meaning of the written agreement. The Court found that although 901126 sought to bring in evidence from outside the four corners of the contract, a close inspection of the surrounding evidence revealed that 901126 misrepresented the nature of its business in the contract.

The Court held that Telus could rescind the contract since 901126 misrepresented the nature of its business or knowingly allowed Telus to believe that it was a retail company. Moreover, the Court reasoned that although rescission of a contract is an equitable remedy where parties are put back into their pre-contractual positions, in this instance Telus was entitled to indemnification since it had been affected by a misrepresentation. 901126, however, was not given any form of relief since, according to the Court, its claims were based on alleged breaches of a contract which was invalidated by that party’s conduct.