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Contracts - Interpretation - Standard of Review (SOR)
MORE CASES
Part 2
. Lindsay v. Verge Insurance Brokers Ltd.
In Lindsay v. Verge Insurance Brokers Ltd. (Ont CA, 2023) the Court of Appeal considered contractual interpretation and the standard of review that applies to it:[16] The standard of review in most contractual interpretation cases is one of substantial deference: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, at paras. 50-52. A correctness standard can be applied only where there is an extricable question of law or where the contract in issue is a standard form contract: Corner Brook (City) v. Bailey, 2021 SCC 29, at para. 44. Neither of these exceptions exists in this appeal or in most contract case appeals. As explained recently by this court in Cronos Group Inc. v. Assicurazioni Generali S.p.A, 2022 ONCA 525, at para. 35:... Sattva identified certain questions that may arise in the contract interpretation exercise as constituting legal errors that attract a correctness standard. However, Sattva went on to emphasize that the fundamental goal of contractual interpretation – to ascertain the objective intentions of the parties – remains an inherently fact-specific exercise. Accordingly, the close relationship between the selection and application of principles of contractual interpretation and the construction ultimately given to the contract means that the circumstances in which a question of law can be extricated from the interpretation process will be rare: Sattva, at para. 55 . Niagara Falls Shopping Centre Inc. v. LAF Canada Company
In Niagara Falls Shopping Centre Inc. v. LAF Canada Company (Ont CA, 2023) the Court of Appeal considered the SOR of a custom contract:[24] The interpretation of a (non-standard form) contract is a question of mixed fact and law, and ordinarily attracts a deferential standard of appellate review: Sattva, at para. 52. Absent an extricable legal error – which courts should be cautious in identifying – or a palpable and overriding error, appellate intervention is not warranted: at paras. 53-54. Extricable legal errors made in the course of contractual interpretation include the application of an incorrect principle, the failure to consider a required element of a legal test, and the failure to consider a relevant factor: at para. 53. Failure to construe a contract as a whole and disregarding relevant provisions are also extricable errors of law: at paras. 63-64. . 908593 Ontario Limited v. Atradius
In 908593 Ontario Limited v. Atradius (Ont CA, 2023) the Court of Appeal considered the standard of review distinction between custom and standard form contracts:[6] The appellant submits that the Policy is a standard form contract and thus the standard of review is correctness, in accordance with the principles set out in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23, at para. 4. We do not agree that the standard of review of correctness is applicable in this case. There is simply no evidence that the Policy is a standard form contract as that term is used in Ledcor: see e.g., at paras. 25, 28. Absent such evidence, the motion judge’s interpretation of the Policy involves issues of mixed fact and law subject to deferential review on appeal: Ledcor, at para. 24; Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 50. As a result, the palpable and overriding error standard of review applies: Ledcor, at para. 21; Hemlow Estate v. Co-operators General Insurance Company, 2021 ONCA 908, 160 O.R. (3d) 467, at paras. 13-14, leave to appeal to S.C.C. refused, [2022] S.C.C.A. No. 51. The appellant has failed to demonstrate that the motion judge made a palpable and overriding error in interpreting the Policy. . 402 Mulock Investments Inc. v. Wheelhouse Coatings Inc.
In 402 Mulock Investments Inc. v. Wheelhouse Coatings Inc. (Ont CA, 2022) the Court of Appeal considered basics of standard of review for contractual interpretation:[29] Contractual interpretation involves issues of mixed fact and law and is subject to appellate deference, unless there is an extricable question of law: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at paras. 52-53. The exception is standard form contracts, which is not relevant here: Corner Brook (City) v. Bailey, 2021 SCC 29, 460 D.L.R. (4th) 169, at para. 44. . Cronos Group Inc. v. Assicurazioni Generali S.p.A.
In Cronos Group Inc. v. Assicurazioni Generali S.p.A. (Ont CA, 2022) the Court of Appeal considers whether the issue before it qualified as an "extricable question of law", and thus required an SOR of correctness:[35] I am not persuaded that the alleged errors in the interpretative process in play on this appeal fall within the class of “rare” circumstances in which a question of law can be extricated from the interpretation process: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 55; Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32, [2017] 1 S.C.R. 688, at para. 63. True, Sattva identified certain questions that may arise in the contract interpretation exercise as constituting legal errors that attract a correctness standard.[3] However, Sattva went on to emphasize that the fundamental goal of contractual interpretation – to ascertain the objective intentions of the parties –remains an inherently fact-specific exercise. Accordingly, the close relationship between the selection and application of principles of contractual interpretation and the construction ultimately given to the contract means that the circumstances in which a question of law can be extricated from the interpretation process will be rare: Sattva, at para. 55. . EPCOR Electricity Distribution Ontario Inc. v. Municipal Electric Association Reciprocal Insurance Exchange
In EPCOR Electricity Distribution Ontario Inc. v. Municipal Electric Association Reciprocal Insurance Exchange (Ont CA, 2022) the Court of Appeal considered the standard of review (SOR) for a standard form contract:(a) The standard of review
[54] The parties agree that the Policy is a contract of adhesion, and a correctness standard of review applies to its interpretation: Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23, at paras. 24, 46. The standard form applies to all policy holders, there is no significant factual matrix to assist the interpretation process, and the interpretation will have precedential value.
[55] I agree with the parties’ submission concerning the standard of review. That said, Ledcor makes it clear that “factors such as the purpose of the contract, the nature of the relationship it creates, and the market or industry in which it operates” are appropriate considerations in the interpretation of a standard form contract: Ledcor, at para. 31. These are generally not fact specific and will usually be the same for all parties to the contract. . H. R. Doornekamp Construction Ltd. v. Canada (Attorney General) (Department of Public Works and Government Services)
In H. R. Doornekamp Construction Ltd. v. Canada (Attorney General) (Department of Public Works and Government Services) (Div Ct, 2022) the Divisional Court considered the standard of review for interpretation of a contract, with a variation on when correctness is required:Standard of Review
[75] In Sattva the Supreme Court of Canada determined that as a general rule interpretation of contracts raises issues of mixed fact and law and is, accordingly, to be given deference. In Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co.[97]an exception is proposed where the appeal involves the interpretation of a standard form contract:I would recognize an exception to this Court’s holding in Sattva that contractual interpretation is a question of mixed fact and law subject to deferential review on appeal. In my view, where an appeal involves the interpretation of a standard form contract, the interpretation at issue is of precedential value, and there is no meaningful factual matrix that is specific to the parties to assist the interpretation process, this interpretation is better characterized as a question of law subject to correctness review.[98] [76] I repeat what was said earlier, in this circumstance, contrary to the submissions made on behalf of Canada, there is some doubt as to whether the contract involved is properly understood to be in a standard form. In Ross-Clair v. Attorney General of Canada[99] the contract was for the construction of offices within the Millhaven Institution, a correctional facility. In that case the precursor to entry into the dispute resolution process was a decision, not by Canada, but by the project engineer. A claim was made but no decision was forthcoming. The question was whether the notice was sufficient to obligate the engineer to decide. On the motion a determination was made that it was. The Court of Appeal disagreed. It found that the standard of review was correctness. In coming to that conclusion, for reasons similar to circumstances in the case being decided, it did not rely on any understanding that the contract followed a standard form:I do not come to this conclusion based on a finding as to the nature of the Contract. Although it may be appropriate to regard the Contract as a standard form agreement, the interpretation of which is subject to review on a correctness standard, it is difficult to arrive at a definitive resolution of that question on this record. There is scant evidence of the circumstances surrounding the formation of the Contract, particularly any aspects that may have been negotiated. There is also scant evidence of the extent to which the terms in the Contract are used in other agreements with the Government of Canada. Moreover, the fact that in a previous decision, the court was required to interpret a very similar contractual provision does not provide a basis for a conclusion that the interpretive exercise in this case would have the potential precedential value that influenced the decisions in Vallieres, Precision Plating, Ledcor, and Chicago Title.[100] [77] Rather, as found by the Court of Appeal the decision of the lower court erred in failing to consider the contract as a whole, thus, making a fundamental error of law calling for a correctness review. Canada submits that the case being decided is one of contract interpretation. The parties agree as to the meaning of the contract provisions involved. The issue is whether the precondition of consultation and co-operation was satisfied. This requires the facts to be considered and applied to the understood meaning of the contract. This is a question of mixed fact and law and, thus, the determination of the motion judge is to be given deference. The degree of that deference is itself an issue. Housen v. Nikolaisen[101] deals with the standard of review on appeal. Where the issue at hand is of mixed fact and law it notes:However, where the error does not amount to an error of law, a higher standard is mandated. Where the trier of fact has considered all the evidence that the law requires him or her to consider and still comes to the wrong conclusion, then this amounts to an error of mixed law and fact and is subject to a more stringent standard of review: Southam, supra, at paras. 41 and 45. While easy to state, this distinction can be difficult in practice because matters of mixed law and fact fall along a spectrum of particularity.[102] [78] Where on the spectrum between “correctness” and “palpable and overriding error” any case may fall depends on the particular circumstances. If the case is specific to the facts involved such that it has no precedential value, it will tend to the deferential end of the spectrum (palpable and overriding error). If the case is more general such that it will act as a precedent, it will tend more to the correctness end. . 2651171 Ontario Inc. v. Brey
In 2651171 Ontario Inc. v. Brey (Ont CA, 2022) the Court of Appeal considered the appellate standard of review for standard form contracts:[13] It is common ground that the standard of review of the motion judge’s interpretation of the parties’ standard form agreement is correctness: Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23, at para. 24. . Guru Eak Transport Ltd. v. Eagle Truck Sales Inc. et al.
In Guru Eak Transport Ltd. v. Eagle Truck Sales Inc. et al. (Div Ct, 2022) the Divisional Court considers standards of review for contract interpretation:[7] The issues raised by the appellants pertain to the trial judge’s findings of fact, based largely on his assessment of credibility of the appellant Bill Sekhon. Findings of fact are treated deferentially on appeal and are reviewed on a standard of palpable and overriding error, see Housen v. Nikolaisen, 2002 SCC 33 (CanLII), [2002] 2 S.C.R. 235. To the extent an issue of contractual interpretation arises, this is characterized as a question of mixed fact and law and is also reviewable on a standard of palpable and overriding error, see Sattva Capital Corp v.Creston Moly Corp., 2014 SCC 53.
[8] The Supreme Court explained the rationale for the deferential approach to trial rulings on issues of contractual interpretation in Heritage Capital Corporation v. Equitable Trust Co., 2016 SCC 19 at para 21:“contractual interpretation involves issues of mixed fact and law as it is an exercise in which the principles of contractual interpretation are applied to the words of the written contract, considered in light of the factual matrix”. In this context, deference to fact finders furthers the goals of limiting the number, length and cost of appeals, and of promoting the autonomy and integrity of trial proceedings. These principles weigh in favour of showing deference to first-instance decision makers on points of contractual interpretation, and treating contractual interpretation as a question of mixed fact and law. [9] The appellants submit the contract in this case is a standard form contract and should be reviewed on a correctness standard, citing the Supreme Court’s judgement in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, at para 24:I would recognize an exception to this Court's holding in Sattva Capital Corp. that contractual interpretation is a question of mixed fact and law subject to deferential review on appeal. In my view, where an appeal involves the interpretation of a standard form contract, the interpretation at issue is of precedential value, and there is no meaningful factual matrix that is specific to the parties to assist the interpretation process, this interpretation is better characterized as a question of law subject to correctness review. [10] The contract in this case is not a standard form contract as contemplated in Ledcor. Rather, it is an invoice of no precedential value, accompanied by other contractual documentation and there existed a fully adequate factual matrix to have enabled the trial judge to interpret the contractual arrangements agreed upon by the parties and assess its application to this transaction. The issue on this appeal is whether the trial judge made any overriding and palpable errors in doing so. . Meridian C C Intl Inc. v. 2745206 Ontario Inc.
In Meridian C C Intl Inc. v. 2745206 Ontario Inc. (Ont CA, 2021) the Court of Appeal considered the appellate standard of review applicable to a contract dispute:[6] It is helpful to begin our analysis with the standard of review. The motion judge’s interpretation of the parties’ lease agreement, including its factual matrix, would ordinarily attract a deferential standard of appellate review: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at paras. 50-52. Absent an extricable question of law, which courts should be cautious in identifying, or palpable and overriding error, appellate intervention is not warranted: Sattva, at paras. 53-54.
[7] An extricable question of law includes a legal error made in the course of contractual interpretation such as 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. Moreover, a failure to consider the contract as a whole, by focussing on one provision without giving proper consideration to other relevant provisions, can also be an error of law: Fuller v. Aphria Inc., 2020 ONCA 403, 4 B.L.R. (6th) 161, at para. 50; Resolute FP Canada Inc. v. Ontario (Attorney General), 2019 SCC 60, 444 D.L.R. (4th) 77, at paras. 26-27, 30 and 32-34. Finally, in Ventas, Inc. v. Sunrise Senior Living Real Estate Investment Trust, 2007 ONCA 205, 85 O.R. (3d) 254, at para. 24, this court emphasized that a commercial contract should be interpreted “as a whole, in a manner that gives meaning to all of its terms and avoids an interpretation that would render one or more of its terms ineffective”. In our view, the motion judge made these errors of law in his analysis of the lease. . Hemlow Estate v. Co-operators General Insurance Company
In Hemlow Estate v. Co-operators General Insurance Company (Ont CA, 2021) the Court of Appeal considered the appellate standard of review for contract interpretation:[13] The law on the standard of review for contract interpretation is well-established. Questions of mixed fact and law are entitled to deference unless the trial judge made a palpable and overriding error. Extricable questions of law are subject to a correctness standard of review: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, at para. 53. Sattva, at para. 54, specifies that courts should be cautious in identifying questions of law in disputes involving contractual interpretation.
[14] For a particular category of contract – namely, standard form contracts – the standard of review is correctness: Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37. This is because there is no meaningful factual matrix specific to the particular parties to assist in the interpretation process: see Ledcor, at para. 4. . OMJ Mortgage Capital Inc. v. King Square Limited
In OMJ Mortgage Capital Inc. v. King Square Limited (Ont CA, 2021) the Court of Appeal considered the appellate standard of review applicable to customized contracts:[11] KSL’s grounds of appeal face a major obstacle in the standard of review now applicable to issues of contract interpretation. In Corner Brook (City) v. Bailey, 2021 SCC 29, 460 D.L.R. (4th) 169, the Supreme Court of Canada repeated the deferential standard of review applicable to most issues of contract interpretation stating, at para. 44:In Sattva, this Court also explained that contractual interpretation is a fact specific exercise, and should be treated as a mixed question of fact and law for the purpose of appellate review, unless there is an “extricable question of law”. The exception is standard form contracts, which is not relevant here: see Ledcor Construction. Extricable questions of law in the context of contractual interpretation include “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, quoting King v. Operating Engineers Training Institute of Manitoba Inc., 2011 MBCA 80, 270 Man. R. (2d) 63, at para. 21. The circumstances in which a question of law can be extracted will be uncommon. Whether something was or should have been within the common knowledge of the parties at the time the contract was entered into is a question of fact: Sattva, at paras. 49-55 and 58. . Ontario First Nations (2008) Limited Partnership v. Ontario Lottery and Gaming Corporation
In Ontario First Nations (2008) Limited Partnership v. Ontario Lottery and Gaming Corporation (Ont CA, 2021) the Court of Appeal considered the standard of review that applied to a matter of contractual interpretation that involved mixed fact and law:[41] In Corner Brook (City) v. Bailey, 2021 SCC 29, 17 B.L.R. (6th) 1, per Rowe J., the Supreme Court affirmed the direction from Sattva that a deferential standard of review applies to questions of mixed fact and law involving the interpretation of a contract. The court in Corner Brook underscored that “contractual interpretation is a fact specific exercise, and should be treated as a mixed question of fact and law for the purpose of appellate review, unless there is an ‘extricable question of law’”: at para. 44. As the court explained, “[e]xtricable questions of law in the context of contractual interpretation include ‘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’”: at para. 44 (citations omitted). The court also cautioned that “[t]he circumstances in which a question of law can be extracted will be uncommon. Whether something was or should have been within the common knowledge of the parties at the time the contract was entered into is a question of fact”: at para. 44 (citations omitted); see, to the same effect, Sattva, at paras. 50, 55; Teal Cedar, at paras. 47, 57.
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(b) Applicable principles of contractual interpretation
[46] The parties agree that the appeal judge correctly stated the applicable principles of contractual interpretation. Those principles were discussed in the Supreme Court’s unanimous decisions in Sattva, per Rothstein J., and more recently in Corner Brook, per Rowe J. They may be summarized as follows:1. Courts should take “a practical, common-sense approach not dominated by technical rules of construction. The overriding concern is to determine ‘the intent of the parties and the scope of their understanding’”: Sattva, at para. 47 (citations omitted).
2. Courts must “read the contract as a whole, giving the words used their ordinary grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract”: Sattva, at para. 47; Corner Brook, at para. 20.
3. The surrounding circumstances should be considered in contractual interpretation. “[A]scertaining contractual intention can be difficult when looking at words on their own, because words do not have an immutable or absolute meaning”: Sattva, at para. 47. The meaning of words in a contract often derives from contextual factors, such as the purpose of the agreement and the nature of the relationship it creates: Sattva, at para. 48. A contract is not made in a vacuum and must be placed in its proper setting. Interpreting a commercial contract requires knowledge of the commercial purpose of the contract, based on “the genesis of the transaction, the background, the context, the market in which the parties are operating”: Sattva, at para. 47, citing Reardon Smith Line Ltd. v. Hansen-Tangen; Hansen-Tangen v. Sanko Steamship Co., [1976] 3 All E.R. 570 (U.K. H.L.), at p. 574, per Lord Wilberforce.
4. The nature of the evidence that may be considered as part of the surrounding circumstances will vary from case to case, but should include only “objective evidence of the background facts at the time of the execution of the contract”, that is, “knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting”. That determination is inherently fact specific: Sattva, at paras. 55, 58 (citation omitted); Corner Brook, at para. 20.
5. The surrounding circumstances should never be allowed to overwhelm the words of the agreement. The surrounding circumstances are considered in order “to deepen a decision-maker’s understanding of the mutual and objective intentions of the parties as expressed in the words of the contract. The interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract”. Courts cannot use the surrounding circumstances to deviate from the text of the contract to the point that the court “effectively creates a new agreement”: Sattva, at para. 57; Corner Brook, at para. 20. . Conseil Scolaire Catholique Franco-Nord v. Nipissing
In Conseil Scolaire Catholique Franco-Nord v. Nipissing (Ont CA, 2021) the Court of Appeal set out the standards of review for contractual interpretation:[23] The interpretation of a contract that is not a standard form contract or contract of adhesion involves questions of mixed fact and law. An appellate court will only intervene if the decision below is tainted by palpable and overriding error: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at paras. 4, 55-56, and 69-71.
[24] As this court explained in Thunder Bay, at para. 30, “the overriding principle is that the meaning of an agreement and the intent of the parties in entering into it must be derived from the words the parties used and the context in which they used those words”. . Corner Brook (City) v. Bailey
In Corner Brook (City) v. Bailey (SCC, 2021) the Supreme Court of Canada considered the standard of appellate review that applies generally to contract issues:[44] In Sattva, this Court also explained that contractual interpretation is a fact specific exercise, and should be treated as a mixed question of fact and law for the purpose of appellate review, unless there is an “extricable question of law”. The exception is standard form contracts, which is not relevant here: see Ledcor Construction. Extricable questions of law in the context of contractual interpretation include “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, quoting King v. Operating Engineers Training Institute of Manitoba Inc., 2011 MBCA 80, 270 Man. R. (2d) 63, at para. 21. The circumstances in which a question of law can be extracted will be uncommon. Whether something was or should have been within the common knowledge of the parties at the time the contract was entered into is a question of fact: Sattva, at paras. 49-55 and 58.
[46] I disagree that any of these constitutes an error warranting appellate intervention. While this first point may describe an error as to an extricable question of law, it is not an error that the application judge made. The application judge did consider what was objectively contemplated or intended by the City, but it is clear that he did not consider this to be determinative of mutual intent. The application judge explicitly considers what was in the contemplation of both parties beginning at para. 29. He explains that the Baileys could have negotiated the terms of the release, but that they chose not to, and he concludes that “what was in the contemplation of the parties was that Mrs. Bailey could no longer bring any claim or demand whatsoever against the City relating to the Accident”: para. 43; see also paras. 41-42 and 44. With respect, the Court of Appeal mischaracterized what the application judge did.
[47] The second and third points are not extricable questions of law. This Court held in Sattva that whether something was or reasonably should have been within the common knowledge of both parties at the time a contract was entered into is a question of fact. The Court of Appeal treated the question of how the surrounding circumstances inform the words of a contract as an “extricable question of law”. This undermines the deferential approach to appellate review of contractual interpretation urged by this Court in Sattva. The Court of Appeal simply disagreed with the application judge’s interpretation of the surrounding circumstances, characterized it as a question of law, and then substituted its own factual conclusions. This does not accord with Sattva. . Zhang v. Shenglin Financial Group Inc.
In Zhang v. Shenglin Financial Group Inc. (Ont CA, 2020) the Court of Appeal considered the standard of review that applied to issues of contractual interpretation:[6] The exercise of interpreting a contract is one of mixed fact and law. The standard of review is consequently one of palpable and overriding error: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633. On this point, we reject the appellant’s argument that this is a standard form contract of the type that would attract a standard of review of correctness under the principles set out in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23. . ING Bank N.V. v. Canpotex Shipping Services Limited
In ING Bank N.V. v. Canpotex Shipping Services Limited (Fed CA, 2020) the Federal Court of Appeal commented on when the standard of review for interpretation of a contract will be one of correctness:[27] In Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633 at para. 50 [Sattva], the Supreme Court of Canada held that generally, the interpretation of a contract is a question of mixed fact and law subject to the standard of the palpable and overriding error. A few years later, in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23 at para. 39 [Ledcor], the Supreme Court of Canada noted that there was an exception to this general principle. Contractual interpretation may still be reviewed as a pure question of law if the required interpretation involved a standard form contract, the interpretation at issue had precedential value and there was no meaningful factual matrix specific to the parties to help the interpretative process (Ledcor at para. 46).
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