Simon's Megalomaniacal Legal Resources

Contract - Interpretation - General (post-Sattva)

. Ward v. Landmark Inn Leasing Corp. et al. [interpretation of settlement contracts]

In Ward v. Landmark Inn Leasing Corp. et al. (Ont Div Ct, 2025) the Ontario Divisional Court dismissed a plaintiff's appeal, this from a Small Claims settlement contract case.

Here the court considers issues of contract interpretation - particularly Sattva, Corner Brook and settlement contracts:

Principles of Contract Interpretation

[34] In the case of Sattva, the Supreme Court of Canada provides some direction with respect to the interpretation of contracts. The court notes that there has been an evolution towards a practical, common-sense approach to contract interpretation which is not focused on technical rules of construction. The primary goal is to determine the intent of the parties and the scope of their understanding, which requires a court to read contracts as a whole, providing an ordinary and grammatical meaning to the words of the contract, consistent with the surrounding circumstances known to the parties when the contract was formed: see Sattva, at para. 47.

[35] In taking this approach, a decision maker is to only consider objective evidence of any background facts which existed at the time the contract was signed. This leaves out any consideration of subjective evidence from the parties as to what each thought the contract language means, and focusses on any knowledge that was or reasonably ought to have been within the knowledge of both parties at the time.

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.

See Sattva, at paras. 57-58.

[36] The Supreme Court of Canada clarifies its Sattva reasoning in the case of Corner Brook. In doing so, the court recognized the historical approach to contract interpretation as one in which words of a contract were given their “black letter” meaning. This approach did not work well for releases – a type of contract – and the Blackmore Rule was imported from the English House of Lords to allow for contextual and objective considerations in the interpretation of releases. However, Corner Brook determined that reference to the Blackmore Rule was no longer necessary nor appropriate given the decision in Sattva which, from my review, incorporates the principles of the Blackmore Rule into the Canadian approach to contract interpretation.

In Sattva, this Court directed judges to look to the surrounding circumstances known to the parties at the time of contract in interpreting the meaning of the words of a contract. .... The Blackmore Rule, which allowed courts to consider factual context when that was not the general rule, has been overtaken by a general rule that factual context is considered in interpreting contracts.

See Corner Brook, at para. 23.

[37] Again, my review of Sattva and Corner Brook is that the Supreme Court of Canada pronounced its own approach to contract interpretation, making it no longer necessary for the Blackmore Rule to exist. I do not read these cases to suggest that the principles of Blackmore Rule must now be abandoned, or that the Blackmore Rule has been fundamentally abandoned or reversed. Instead, the Blackmore Rule no longer applies because its principles have been modernized by the court’s decision in Sattva: see Corner Brook, at para. 33.

[38] Corner Brook also references and adopts the Court of Appeal’s reasoning in Biancaniello v. DMCT LLP, 2017 ONCA 386, 138 O.R. (3d) 210 (C.A.) (“Biancaniello”), which specifically applied the Blackmore Rule. Corner Brook does not, on the other hand, state that Biancaniello’s reference to the Blackmore Rule was inappropriate, or rendered its decision in error for relying on the Blackmore Rule instead of Sattva.

[39] I mention all of these cases and the progression of the reasoning adopted by the Supreme Court of Canada because one of the main arguments of the appellant with respect to the interpretation of the Memorandum of Settlement was that the Trial Decision improperly relied upon Biancaniello and the Blackmore Rule since that principle of law has been overcome by Sattva.

[40] I disagree with the arguments of Ward which suggest the Trial Judge improperly invoked and relied upon the Blackmore Rule in his reliance upon Biancaniello.

[41] To begin, the Trial Judge specifically considered Sattva as authority for the proposition that a contract is to be read as a whole, giving the words contained in the contract their ordinary and grammatical meaning, consistent with the circumstances known at the time the contract was signed. He then moved on to a consideration of Biancaniello since that case involved the interpretation of not just a contract, but a release.

Biancaniello .... is a case where the court was called on to interpret a release. The court adopted an approach based on five principles, including, with respect to future unknown claims, that while it is possible to release such claims, courts will require clear language to infer that a party intended to release claims of which it was unaware, and that general language in a release will be limited to the thing or things that were specially in the contemplation of the parties when the release was given, and that the court can look at the surrounding circumstances to determine what was specifically in the contemplation of the parties.

[42] As already noted, the Supreme Court of Canada endorsed the Ontario Court of Appeal’s decision in Biancaniello in the Corner Brook case. As such, I do not accept Ward’s argument that the Trial Judge improperly relied upon and applied Biancaniello contrary to Corner Brook which reinforced the applicability of Sattva.

[43] The court in Biancaniello simply recognized that the factual nexus of the negligence claim existed at the time the release was signed. As such, the release applied. While the negligent actions were unknown at the time the release was signed, the acts of negligence had occurred before the release was executed. This negligence was therefore caught by the terms of the release, and indemnity had to be provided.

. 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.

…

[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. .....

. 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.

.....

[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.

....

[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.