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Appeals - Contracts - Standard of Review

Contracts - Interpretation

1079268 Ontario Inc. v. GoodLife Fitness Centres Inc. (Ont CA, 2017)

In this case the Court of Appeal usefully canvasses the standards of review applicable to appellate review of trial finding regarding written contracts (here a commercial lease), and basics of contract interpretation:
[23] As the Supreme Court of Canada explained in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 (CanLII), [2014] 2 S.C.R. 633, contractual interpretation is properly characterized as a mixed question of fact and law and is subject to deferential review on appeal. Although the court has since held that standard form contracts are an exception to this rule and are subject to review on the standard of correctness, that exception does not apply here: see Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37 (CanLII). The provisions of the lease in question were negotiated by the parties and their interpretation is subject to the Sattva principles.

[24] Sattva makes clear that the standard of review is palpable and overriding error, unless it is possible to identify an extricable question of law, in which case correctness review applies. Sattva emphasizes that questions of law are relatively rare; courts must be cautious in identifying extricable questions of law, lest contractual interpretation collapse into correctness review. Nevertheless, the Supreme Court identified three examples of legal errors that may be made in the course of contractual interpretation: “the application of an incorrect principle, the failure to consider a required element of a legal test, or the failure to consider a relevant factor”: Sattva, at para. 53 (citing King v. Operating Engineers Training Institute of Manitoba Inc., 2011 MBCA 80 (CanLII), 270 Man. R. (2d) 63, at para. 21).


[27] As the Supreme Court explained in Sattva, the court 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 formation of the contract”: Sattva, at para. 47.

[28] The circumstances surrounding the formation of the lease take on particular importance in a case such as this, given the inconsistent and contradictory provisions that were included in the lease in its final form.

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