Simon's Megalomaniacal Legal Resources

Contracts - Interpretation - Standard of Review (2)

. Crescent Limited v. Jones

In Crescent Limited v. Jones (Div Court, 2024) the Divisional Court considered the SOR (of deference) applicable to a customized contract (ie. not a 'standard' contract of adhesion), regardless of how tempting 're-writing' might be:

[55] The trial judge’s construction of the SPA requires deference. As the Court of Appeal recently confirmed in Spot Coffee Park Place Inc. v. Concord Adex Investments Ltd., 2023 ONCA 15:

27. In Sattva, at para. 50, Rothstein J. reasoned that 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. He went on to note, at para. 51, that:

One central purpose of drawing a distinction between questions of law and those of mixed fact and law is to limit the intervention of appellate courts to cases where the results can be expected to have an impact beyond the parties to the particular dispute.

28. As he observed at para. 52, legal obligations arising from a contract are, in most cases, limited to the interests of the particular parties. Deference to first instance decision-makers on points of contractual interpretation promotes the goal of limiting the cost of appeals and the autonomy and integrity of trial proceedings. In Corner Brook [cite omitted], Rowe J. affirmed this deferential standard of review in the face of a question of mixed fact and law involving the interpretation of a contract.

[56] I agree with JDIMI that Crescent’s submission to the trial judge was essentially an invitation to re-write the contract between the parties. However, courts do not rewrite contracts between sophisticated parties, even if there is some justification for believing that the contract may have an issue and could have been improved. As the British Columbia Court of Appeal explained in Alpine Veneers Ltd. v. Reed Lumber Co. Ltd., [1983] BCJ No. 2289 (citing the House of Lords in Trollope v. Colls v. Northwest Metropolitan Regional Hospital Board, (1973) 2 All E.R. 260):

... the basic principle [is] that the court does not make a contract for the parties. The court will not even improve the contract which the parties have made for themselves, however desirable the improvement might be. The court’s function is to interpret and apply the contract which the parties have made for themselves. If the express terms are perfectly clear and free from ambiguity, there is no choice to be made between different possible meanings; the clear terms must be applied even if the court thins some other terms would have been more suitable. An unexpressed term can be implied if and only if the court finds that the parties must have intended that term to form part of their contract; it is not enough for the court to find that such a term would have been adopted by the parties as reasonable men if it had been suggested to them: it must be a term that went without saying, a term necessary to give business efficacy to the contract, a term which, although tacit, formed part of the contract which the parties made for themselves.

. 1284225 Ontario Limited v. Don Valley Business Park Corporation

In 1284225 Ontario Limited v. Don Valley Business Park Corporation (Ont CA, 2024) the Ontario Court of Appeal categorizes contractual errors of law for standard of review purposes:

[4] Absent error, the application judge’s interpretation of the parties’ Parking Agreement is owed considerable appellate deference and is reviewable on a standard of “palpable and overriding error”: Heritage Capital Corp. v. Equitable Trust Co., 2016 SCC 19, [2016] 1 S.C.R. 306, at para. 21. However a correctness standard applies if the appeal involves the incorrect application of a legal principle, the failure to consider a required element of a legal test, or the failure to consider a relevant factor: Heritage Capital, at para. 22.

. SIR Corp. v. Aviva Insurance Company of Canada

In SIR Corp. v. Aviva Insurance Company of Canada (Ont CA, 2023) the Court of Appeal considers a business insurance policy that the insured claimed was triggered by provincial EMCPA COVID orders.

In these quotes, the court considers the appellate SOR for contracts - both standard form and customized, here in an insurance policy context:

(1) Standard of review

[33] As a general rule, contractual interpretation is a question of mixed fact and law subject to deferential review on appeal: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at paras. 50-52; Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23, at para. 24. An exception to that rule has been recognized by the Supreme Court of Canada in Ledcor, at para. 24:

[W]here 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.

[34] In this case, that exception does not apply. This is a broker-worded manuscript policy, not a standard form agreement, and there is a meaningful factual matrix specific to the parties.

[35] Accordingly, it is not open for this court to intervene unless the application judge made a palpable and overriding error in her interpretation of the Policy or an extricable error of law, in which case the standard of review is correctness: Sattva, at para. 53; Ledcor, at para. 21.

. Ontario Securities Commission v. Bridging Finance Inc.

In Ontario Securities Commission v. Bridging Finance Inc. (Ont CA, 2023) the Court of Appeal considered what I think can be describes as a securities liquidation. A "privately held investment management firm" was put into receivership pursuant to s.129 of Ontario's Securities Act (OSA) by the Ontario Securities Commission, in addition to related ancillary orders. The case itself was an appeal of an application to declare priority (or rather non-priority: pari passu) of different investors. In the course of the liquidating several investors sought to claim 'Liability for misrepresentation in offering memorandum' [OSA 130.1].

In these quotes the court considers the SOR applicable to contracts of 'adhesion' ('standard-form contracts'):

(1) Standard of Review

[8] A central component of the motion judge’s analysis was his consideration of the constating documents to determine which claimants, if any, have a priority. The standard of review of a decision interpreting a contract depends on the nature of the contract. In Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, the Supreme Court of Canada held that contractual interpretation is a matter of mixed fact and law because the words of a contract are interpreted in light of its factual matrix.

[9] After Sattva was released, questions arose regarding the precise scope of the ruling. For example, many commercial and consumer contracts are standard form documents presented on a take it or leave it basis. These are not situations where the parties sat across a table and hammered out a bargain. There is no relevant factual matrix for such contracts. There were also concerns regarding the precedential value of appellate decisions interpreting standard form contracts. For example, in MacDonald v. Chicago Title Insurance Co. of Canada, 2015 ONCA 842, 127 O.R. (3d) 663, at para. 40, this court held that it would be unacceptable to have two different interpretations of the same clause in a standard form insurance policy. A correctness standard of review therefore “best ensures that provincial appellate courts are able to fulfill their responsibility of ensuring consistency in the law”: MacDonald, at para. 41.

[10] The Supreme Court clarified the scope of Sattva in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23. At para. 24, Wagner J. (as he then was), writing for the majority, found an exception to the rule in Sattva and outlined three relevant factors to determine the appropriate appellate standard of review of standard form contracts, as follows:

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.

[11] I have no difficulty in concluding that the constating documents are standard form agreements, otherwise known as contracts of adhesion. These were take it or leave it contracts and there is no suggestion that the more than 25,000 Unitholders were able to negotiate their agreements with Bridging: see e.g., Mikelsteins v. Morrison Hershfield Limited, 2019 ONCA 515, at paras. 11-12. There is also no suggestion that there is a relevant factual matrix that informed the motion judge’s contractual analysis.

[12] The remaining Ledcor factor is the issue of precedential value. Counsel for the Receiver submits that the correctness standard of review does not apply because there is no precedential value in this case given that Bridging is in receivership and there will be no future claims against it. I accept this submission and agree that there likely will be no future litigation against Bridging requiring the interpretation of the constating documents. In addition, I also appreciate that the Supreme Court in Ledcor found that the presence of all three factors resulted in the imposition of the correctness standard of review.

[13] The issue that remains open – and which has been raised in this case – is what happens in a situation with a standard form contract executed by tens of thousands of people where there is no relevant factual matrix, but there is little or no chance of future litigation involving the same contract. Usually, standard form contracts automatically have precedential value because there are other potential litigants who executed the same contract. However, the case at bar is a unique situation because Bridging will not be extant in the future and all claims are being resolved in this proceeding. Does the fact that there is no precedential value mean that the motion judge’s analysis must be reviewed on a deferential standard of review? In the circumstances of this case, the answer to that question is no. Given that there are no factual findings and, indeed, scant reference to the facts underlying the creation of the constating documents, there is no basis for this court to defer to the motion judge.

[14] In my view, the absence of one of the Ledcor factors should not automatically lead to the imposition of a deferential standard of review. In the case at bar, the motion judge was engaged in a purely legal analysis about contracts that will potentially impact thousands of people. This court is in as good a position as the motion judge to analyze the constating documents and reach a conclusion as to their legal meaning. There is no reason to take a deferential approach. Therefore, I find that the standard of review of the motion judge’s contractual analysis is correctness.

[15] The other significant issue in the motion judge’s analysis is his interpretation of s. 130.1 of the OSA. The interpretation of a statute on appeal is also reviewed on a standard of correctness: see e.g., Harvey v. Talon International Inc., 2017 ONCA 267, 137 O.R. (3d) 184, at para. 32; Oakville (Town) v. Clublink Corporation ULC, 2019 ONCA 826, 148 O.R. (3d) 513, at para. 35.

. Horn Ventures International Inc. v. Xylem Canada LP

In Horn Ventures International Inc. v. Xylem Canada LP (Ont CA, 2023) the Court of Appeal considers 'extricable errors of law' exceptions to the normal SOR for review of contractual interpretation issues [SS: the 'normal' SOR for non-standard contractual interpretation issues is 'palpable and overriding' as they are issues of mixed errors of fact and law]:

C. ANALYSIS

[14] To determine the meaning of the Obligation to Purchase provision, the application judge was required to engage in “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”. Deference is owed to such a determination, absent an extricable error of law: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at paras. 50-52.

[15] Extricable errors of law made in the course of a judge’s interpretation will displace deference: Sattva, at para. 53. Horn Ventures argues that the application judge made three such errors.

[16] First, Horn Ventures submits that the application judge erred in identifying in the Obligation to Purchase provision’s opening language two conditions to its operation. The provision states: “[Xylem] shall advise [Horn Ventures] that [Xylem] has completed the Remediation and shall provide an unqualified and unconditional certificate from an environmental consultant … confirming that any and all environmental problems … have been successfully remediated”. Horn Ventures argues that this language describes one condition – remediation – and the environmental certificate is simply the way Xylem is to advise that the remediation is complete. Therefore, the contractual right to waive the certificate was in reality a right to waive the one and only condition precedent to the operation of the Obligation to Purchase provision – fulfilment of the obligation to remediate.

[17] We disagree that this argument reveals an extricable legal error. The application judge carefully examined the text of the provision in light of the language of the Offer to Lease as a whole and the factual matrix. No failure to adhere to a principle of interpretation has been identified.

[18] Applying the deferential standard of review, there is no basis to interfere with the application judge’s interpretation. It is one the text can reasonably bear. The clause imposes a requirement that Xylem “shall advise … that [it] has completed the Remediation” and a requirement that Xylem “shall provide an unqualified and unconditional certificate from an environmental consultant”. Viewing those as two matters, not one, is consistent with the waiver clause in the Obligation to Purchase provision which expressly refers only to the “foregoing requirement for the delivery of said certificate” (emphasis added). The clause does not refer to the requirement that Xylem advise that the remediation is complete, nor does it refer generally to a “foregoing requirement”. In addition, this interpretation is consistent with the attached agreement of purchase and sale, which contemplated a representation and warranty of Xylem that the remediation is complete and the delivery of a certificate of completion. And, it is consistent with the application judge’s findings, derived from the surrounding circumstances and the Offer to Lease as a whole, that the property being remediated (and thus ceasing to be the source of continuing environmental liabilities to third parties) was a benefit to Xylem as well as Horn Ventures, such that neither would have intended that a transfer of ownership and a loss of Xylem’s contractual rights of access would take place before the remediation was complete.

[19] Second, Horn Ventures submits that the application judge erred in finding that completion of the remediation was a mutual benefit, not one to Horn Ventures alone. It argues that remediation only benefitted Horn Ventures, such that the entire requirement to remediate could be waived by Horn Ventures. We disagree that any legal error was involved in the application judge’s finding, which is essentially one of mixed fact and law. The finding was available to the application judge on the record, and there is no basis to disturb it.

[20] Horn Ventures argues that even though Xylem would be selling unremediated property, it could deal with its post-sale environmental liability exposure by exercising rights of access to the property under s. 95 of the Environmental Protection Act, R.S.O. 1990, c. E.19. This argument is beside the point. That right would have existed without the Offer to Lease. Xylem had contracted for specific rights of access and cooperation during the term of the lease in order to address remediation before ownership of the property would be transferred, in view of its future exposure to liability, and its desire to control the remediation effort and the communications with the regulator until remediation was complete and its liability ended. The application judge was entitled to consider that a scenario under which Xylem could be forced to sell and still “be left with the liability for the unremediated land but would no longer hold either the ownership interest or the access and remediation rights under the [Offer to Lease]” was contrary to the parties’ intentions objectively derived.

[21] Finally, Horn Ventures argues that the application judge erred in giving weight to the subjective intentions of Xylem. In our view, the application judge did not make the error of factoring subjective intentions into his contractual interpretation analysis.

. Jakab v. Clean Harbors Canada, Inc.

In Jakab v. Clean Harbors Canada, Inc. (Ont CA, 2023) the Court of Appeal considered whether a contract was customized or standard (adhesion), here for the purpose of determining which SOR applied:

B. The standard of Review

[8] The appellants argue that the contract is a standard form contract of adhesion, attracting correctness review under the authority of Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23. In support of their position, they rely on evidence that the contract is a pre‑printed contract that was simply presented to the appellants for execution, and that Clean Harbors’ Vice-President of National Logistics testified that the terms of the contract were not negotiable.

[9] Conversely, Clean Harbors submits that a deferential standard of appellate review applies since this contract was prepared for the specific situation of owner/operator truck drivers contracted by Clean Harbors in Canada and is not the kind of “highly specialised” industry wide standard form contract having the precedential value envisaged in Ledcor. Clean Harbors also relies on testimony provided by its Vice President of Risk Management in which he expressed disagreement with the suggestion that the contract was non-negotiable. Finally, Clean Harbors argues that even if the contract was a contract of adhesion, the company has approximately 20 owner/operator truck drivers it contracts with in Canada, not enough to give the interpretation of the contract the meaningful precedential value that can attract correctness review.

[10] The question of whether standard form contracts of adhesion used exclusively within a single organization have a sufficient precedential value to attract correctness review has yet to be settled. In Matthews v. Ocean Nutrition Canada Ltd., 2020 SCC 26, 449 D.L.R. (4th) 583, Kasirer J., for the Court, questioned whether correctness review would apply to a standard form employment contract used with a “limited number of executives” but found it was unnecessary on the facts before him to resolve the issue. This court has yet to grapple with this question directly. In my view, it is unnecessary to attempt to do so in this case. Even applying the more demanding correctness standard of review, I would uphold the trial judge’s interpretation of the contract.