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Simon Shields, LLB

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Contracts - Interpretation

Starrcoll Inc. v. 2281927 Ontario Ltd. (Ont CA, 2016)

In this case the Court of Appeal commented as follows on an issue of contractual interpretation:
[16] The application judge described the applicable principles of contractual interpretation as follows:
[9] Where there is no ambiguity in a written contract, it should be given its literal meaning. Words should be construed in their plain and ordinary sense unless to do so would result in a commercial absurdity. In construing particular words and provisions, they should be placed within the context of the entire contract, construed as a whole, to the extent that is possible.

[11] The court may consider “objective evidence of the factual matrix underlying the negotiation of the contract” to resolve any ambiguity in the contract. However, where a party claims that the literal, plain-meaning reading of the contract leads to a commercial absurdity, the court may look at objective extrinsic evidence to assess the commercial reasonableness of the plain meaning. [Emphasis added. Footnotes omitted.]
[17] The application judge erred in law in his approach to contractual interpretation. The words of an agreement, and the context in which those words are used, cannot be separated and approached at different stages of the interpretative process. Words in an agreement have no meaning without context. The contemporary approach to contractual interpretation is set out in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 (CanLII), [2014] 2 S.C.R. 633, at paras. 47-48:
[A] decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of the formation of the contract. Consideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning.

The meaning of words is often derived from a number of contextual factors, including the purpose of the agreement and the nature of the relationship created by the agreement. [Emphasis added. Citations omitted.]
[18] The court in Sattva quoted with approval Lord Hoffmann in Investors Compensation Scheme Ltd. v. West Bromwich Building Society, [1998] 1 All E.R. 98 (H.L.), at 115:
The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. [Emphasis added.]

[20] As explained in Sattva, contractual interpretation is a search for the objective intention of the parties as discerned from the language of the relevant provision considered in the context of the entirety of the agreement, the purpose of the provision, the nature of the relationship created by the agreement, and any other relevant surrounding circumstances. .....

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