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Contracts - Interpretation - Basics
MORE CASES
Part 2
. Intercap Equity Inc. v. Bellman
In Intercap Equity Inc. v. Bellman (Ont CA, 2021) the Court of Appeal set out principles of contractual interpretation:[36] Contractual interpretation is a question of mixed fact and law and subject to a deferential standard of review, absent extricable questions of law 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 Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 53, citing King v. Operating Engineers Training Institute of Manitoba Inc., 2011 MBCA 80, 280 Man. R. (2d) 63, at para. 21. As noted by the Supreme Court in Sattva, at para. 55, “[T]he goal of contractual interpretation, to ascertain the objective intentions of the parties, is inherently fact specific. The close relationship between the selection and application of principles of contractual interpretation and the construction ultimately given to the instrument means that the circumstances in which a question of law can be extricated from the interpretation process will be rare.”
[37] In this case, there are no extricable questions of law. The questions on this appeal involve the interpretation of provisions of negotiated agreements. As such, the standard of review is the deferential standard of palpable and overriding error: Sattva, at paras. 52-55; Heritage Capital Corp. v. Equitable Trust Co., 2016 SCC 19, [2016] 1 S.C.R. 306, at paras. 21-24. . The Catalyst Capital Group Inc. v. Dundee Kilmer Developments Limited Partnership
In The Catalyst Capital Group Inc. v. Dundee Kilmer Developments Limited Partnership (Ont CA, 2020) the Court of Appeal stated as follows on contractual interpretation:[50] First, it is a fundamental principle of contractual interpretation that a contract must be interpreted as a whole. That, in turn, requires a consideration of related contracts entered into as part of a larger composite whole: Geoff R. Hall, Canadian Contractual Interpretation Law, Third Edition (Toronto: LexisNexis, 2016), at §2.2.6. As explained by this court in 3869130 Canada Inc. v. I.C.B. Distribution Inc., 2008 ONCA 396, 239 O.A.C. 137, at para. 33:Where each agreement is entered into on the faith of the others being executed and where it is intended that each agreement form part of a larger composite whole, assistance in the interpretation of any particular agreement may be drawn from the related agreements. . Trade Finance Solutions Inc. v. Equinox Global Limited
In Trade Finance Solutions Inc. v. Equinox Global Limited (Ont CA, 2018) the Court of Appeal cited basics of contract interpretation:[34] The general principles of contractual interpretation are straightforward: “the court construes the contract 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”: Salah v. Timothy's Coffees of the World Inc., 2010 ONCA 673, 74 B.L.R. (4th) 161, at para. 16. .... . 2249778 Ontario Inc. v Smith (Fratburger)
In 2249778 Ontario Inc. v Smith (Fratburger) (Ont CA, 2014) the Court of Appeal restated principles of interpretation applicable to commercial contracts (in this case in a lease), with particular attention to the role of 'surrounding circumstances' in interpretation (aka parole evidence), and the principle of contra proferentum:[19] As stated in Ventas, Inc. v. Sunrise Senior Living Real Estate Investment Trust, 2007 ONCA 205 (CanLII), 85 O.R. (3d) 254 (C.A.), at para. 24, a commercial contract is to be interpreted:(a) 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;
(b) by determining the intention of the parties in accordance with the language they have used in the written document and based upon the “cardinal presumption” that they have intended what they have said;
(c) with regard to objective evidence of the factual matrix underlying the negotiation of the contract, but without reference to the subjective intention of the parties; and (to the extent there is any ambiguity in the contract),
(d) in a fashion that accords with sound commercial principles and good business sense, and that avoids a commercial absurdity. [20] In Sattva, the Supreme Court addressed the issue of surrounding circumstances. Rothstein J. wrote, at para. 57:While the surrounding circumstances will be considered in interpreting the terms of a contract, they must never be allowed to overwhelm the words of that agreement. The goal of examining such evidence is 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. While the surrounding circumstances are relied upon in the interpretive process, courts cannot use them to deviate from the text such that the court effectively creates a new agreement. [Citations omitted.] [21] Evidence of surrounding circumstances should consist only of objective evidence of the background facts at the time of execution of the contract: knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting: Sattva, at para. 58.
[22] Finally, the rule of contra proferentum applies in cases where the contractual terms are ambiguous: Consolidated-Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., 1979 CanLII 10 (SCC), [1980] 1 S.C.R. 888, at p. 900 and Manulife Bank of Canada v. Conlin, 1996 CanLII 182 (SCC), [1996] 3 S.C.R. 415, at pp. 425-426. . Ross-Clair v. Canada (Attorney General)
In Ross-Clair v. Canada (Attorney General) (Ont CA, 2016) the Court of Appeal commented as follows on the interpretation of contracts:[48] One of the fundamental principles of contractual interpretation is that the contract must be construed as a whole: Sattva, at para. 64. In Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4 (CanLII), [2010] 1 S.C.R. 69, at para. 64, the Supreme Court expressed this contractual interpretation imperative as follows: “the words of one provision must not be read in isolation but should be considered in harmony with the rest of the contract and in light of its purposes and commercial context.” A proper interpretation of GC 35.4 had to involve a consideration of the other provisions in the Contract, specifically those comprising the Code. . Starrcoll Inc. v. 2281927 Ontario Ltd.
In Starrcoll Inc. v. 2281927 Ontario Ltd. (Ont CA, 2016) 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.
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[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. ..... . Unique Broadband Systems, Inc. (Re)
In Unique Broadband Systems, Inc. (Re) (Ont CA, 2014) the Court of Appeal elaborated on current principles of contractual interpretation, as follows:[84] In Manulife Bank of Canada v. Conlin, 1996 CanLII 182 (SCC), [1996] 3 S.C.R. 415, at pp. 439-40, quoting Ruth Sullivan, Driedger on the Construction of Statutes, 3d. ed. (Toronto: Butterworths, 1994), at p. 131, L’Heureux-Dubé J., dissenting, described the interpretation of statutes in the following way that applies equally to contractual interpretation:There is only one rule in modern interpretation, namely, courts are obliged to determine the meaning of [that which is to be judicially interpreted] in its total context, having regard to [its] purpose …, the consequences of proposed interpretations, the presumptions and special rules of interpretation, as well as admissible external aids. In other words, the courts must consider and take into account all relevant and admissible indicators of […] meaning. After taking these into account, the court must then adopt an interpretation that is appropriate. An appropriate interpretation is one that can be justified in terms of (a) its plausibility, that is, its compliance with the […] text; (b) its efficacy, that is, its promotion of the […] purpose; and (c) its acceptability, that is, the outcome is reasonable and just. [Emphasis added by L’Heureux-Dubé J.] [85] The subjective intent of one party to a contract “has no independent place” in interpreting contractual provisions: Eli Lilly & Co. v. Novopharm Ltd., 1998 CanLII 791 (SCC), [1998] 2 S.C.R. 129, at para. 54.
[86] While the plain meaning of the words used by the contracting parties is important, the contract must be read as a whole and in the context of the circumstances as they existed when the contract was created: Dumbrell v. The Regional Group of Companies Inc., 2007 ONCA 59 (CanLII), 2007 ONCA 59, 85 O.R. (3d) 616, at para. 52.
[87] Courts will avoid a contractual interpretation which results in rendering the agreement unlawful. As Blair J.A. discussed in Ventas, Inc. v. Sunrise Senior Living Real Estate Investment Trust, 2007 ONCA 205 (CanLII), 2007 ONCA 205, 85 O.R. (3d) 254, at para. 57, quoting John D. McCamus, The Law of Contracts (Toronto: Irwin Law, 2005), at p. 729,[3] “where an agreement admits of two possible constructions, one of which renders the agreement lawful and the other of which renders it unlawful, courts will give preference to the former interpretation”; see also Cantor Art Services Ltd. v. Kenneth Bieber Photography Ltd., [1969] 1 W.L.R. 1226 (C.A.).
[88] A commercial contract will be interpreted in a manner that is consistent with commercial principles and that avoids a commercial absurdity. In Consolidated-Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., 1979 CanLII 10 (SCC), [1980] 1 S.C.R. 888, at p. 901, Estey J. stated:[w]here words may bear two constructions, the more reasonable one, that which produces a fair result, must certainly be taken as the interpretation which would promote the intention of the parties. Similarly, an interpretation which defeats the intentions of the parties and their objective in entering into the commercial transaction in the first place should be discarded in favour of an interpretation of the policy which promotes a sensible commercial result. [89] As stated by the House of Lords in Mannai Investment Co. Ltd. v. Eagle Star Life Assurance Co. Ltd., [1997] 2 W.L.R. 945, at p. 964 (H.L.), commercial contracts should be “interpreted in the way in which a reasonable commercial person would construe them. And the standard of the reasonable commercial person is hostile to technical interpretations and undue emphasis on niceties of language”.
[90] The interpretation of a contract is a question of law. Accordingly, the standard of review by an appellate court is correctness: Bell Canada v. The Plan Group, 2009 ONCA 548 (CanLII), 2009 ONCA 548, 96 O.R. (3d) 81. . Martenfeld v Collins Barrow Toronto LLP
In Martenfeld v Collins Barrow Toronto LLP (Ont CA, 2014) the Court of Appeal characterized the basic principles of interpretation of contracts as follows:[39] In determining the legal rights and obligations of the parties under a written contract, the primary task of a reviewing court is to ascertain the objective intentions of the parties and the scope of their understanding regarding the rights and obligations at issue. Recently, in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 (CanLII), 2014 SCC 53, the Supreme Court, at para. 47, reiterated the well-established principle that courts are to undertake this task with a view to “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.”
[40] This interpretive approach governs the construction of the Partnership Agreement. Under this approach, while the circumstances surrounding the formation of the disputed contract are relevant as an interpretive aid, they cannot overtake the written words used by the parties. As the Sattva court explained, at para. 57, “[t]he interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract”.
[41] The Sattva court also held, at para. 50, 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.” Thus, questions of contractual interpretation generally attract a deferential standard of review: Sattva at para. 52. Further, although it may be possible “to identify an extricable question of law from within what was initially characterized as a question of mixed fact and law”, “courts should be cautious in identifying extricable questions of law in disputes over contractual interpretation” since, among other considerations, “the goal of contractual interpretation, to ascertain the objective intentions of the parties, is inherently fact specific”: Sattva at paras. 53-55.
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[75] The trial judge referred specifically to Dumbrell and Ventas, as well as Eli Lilly & Co. v. Novopharm Ltd., 1998 CanLII 791 (SCC), [1998] 2 S.C.R. 129 and stated, at para. 37:[T]he goal of interpretation of contracts is to determine the intention of the parties with reference to the words used in drafting the document, possibly read in light of the surrounding circumstances prevalent at the time. Evidence of one party’s subjective intention is irrelevant. Extrinsic evidence need not be considered at all when the document is clear and unambiguous on its face. It should be presumed that the parties intended the legal consequences of their words. This makes it possible to interpret a plainly-worded document in accordance with the true contractual intent of the parties and not by the intent they ascribe to it with hindsight once differences have arisen. . All-Terrain Track Sales and Services Ltd. v. 798839
In All-Terrain Track Sales and Services Ltd. v. 798839 (Ont CA, 2020) the Court of Appeal cited this principle of contractual interpretation:[23] The starting point for contractual interpretation is the language of the agreement. As indicated in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 57:While the surrounding circumstances will be considered in interpreting the terms of a contract, they must never be allowed to overwhelm the words of that agreement…While the surrounding circumstances are relied upon in the interpretive process, courts cannot use them to deviate from the text such that the court effectively creates a new agreement. [Citations omitted.] [24] Further, the factual matrix should “consist only of 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” (citation omitted): Sattva, at para. 58.
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[26] The key issue to determine in contractual interpretation is the “intent of the parties and the scope of their understanding”: Sattva, at para. 47.
[27] As summarized in Richcraft Homes Ltd. v. Urbandale Corporation, 2016 ONCA 622, 352 O.A.C. 186, at para. 58, this court reiterated that a commercial contract is to be interpreted:(a) 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;
(b) by determining the intention of the parties in accordance with the language they have used in the written document and based upon the "cardinal presumption" that they have intended what they have said;
(c) with regard to objective evidence of the factual matrix underlying the negotiation of the contract, but without reference to the subjective intention of the parties; and (to the extent there is any ambiguity in the contract),
(d) in a fashion that accords with sound commercial principles and good business sense, and that avoids a commercial absurdity. . De Beers Canada Inc. v Ootahpan Company Limited
In De Beers Canada Inc. v Ootahpan Company Limited (Ont CA, 2014) the Court of Appeal stated as follows on principles of interpretation applicable to business contracts, here involving insurance arrangements between the parties:[3] In interpreting the contractual arrangements between the parties, including their arrangements for insurance, we apply the principles of contract interpretation set out in Bell Canada v. The Plan Group, 2009 ONCA 548 (CanLII), 96 O.R. (3d) 81 at paras. 37-38. These include: (a) interpreting the contract as a whole, with a view to giving meaning to all its terms; (b) determining the intentions of the parties in accordance with the words they have used; (c) having regard to the factual matrix; and (d) interpreting the contract in a manner that accords with sound commercial principles and good business sense. . Rankin Construction Inc. v. Ontario
In Rankin Construction Inc. v. Ontario (Ont CA, 2014) the Court of Appeal made the following comments on the interpretive principles that the courts will applied to commercial contracts:[29] Terms may be implied in a contract based on: (1) custom or usage; (2) legal incidents of a class or type of contract; or (3) the presumed intention of the parties, where the term is necessary “to give business efficacy to a contract or as otherwise meeting the ‘officious bystander’ test as a term which the parties would say, if questioned, that they had obviously assumed”: Canadian Pacific Hotels Ltd. v. Bank of Montreal, 1987 CanLII 55 (SCC), [1987] 1 S.C.R. 711, at p. 775; see also M.J.B. Enterprises, at para. 27; Double N Earthmovers, at para. 30; Martel, at para. 81. Any implied terms must fit and be the necessary implication of the express terms; if there is any evidence against the proposed term, it cannot be implied: M.J.B. Enterprises, at para. 29. In my view, none of the criteria for an implied term prohibiting investigation of allegedly non-compliant bids is made out in this case.
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