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Contract - Interpretation - Inconsistent Terms. Fuller v. Aphria Inc.
In Fuller v. Aphria Inc. (Ont CA, 2020) the Court of Appeal considered contractual interpretation principles applicable to a situation of inconsistent contractual terms:(c) The Problem of Apparently Inconsistent Terms
[56] Underlying each side’s position is the argument that acceptance of the opposing position would render one of the terms of the agreements ineffective. A bedrock principle of contractual interpretation is that the text of a written agreement is to be read “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”: Ventas Inc. v. Sunrise Senior Living Real Estate Trust, 2007 ONCA 205, 85 O.R. (3d) 254, at para. 24(a).
[57] In some cases, however, the application of that principle can be especially challenging. This occurs when the parties have included apparently inconsistent provisions in their agreement. An inconsistent term is one that contradicts another or is in conflict with it to such an extent that effect cannot be given to both: H.G. Beale, ed., Chitty on Contracts, 32nd ed. (London UK: Sweet & Maxwell, 2015) vol. 1, at 13-080.
[58] Here, effect cannot be given to both a term that provides that the Options, granted in a two-year non-renewable Consulting Agreement, can be exercised for five years, and a term that provides that the Options cannot be exercised more than six months after the end of a consulting arrangement. To the same question, ‘Can these Options be exercised more than 2.5 years after they were granted?’, one provision would say ‘yes’ while the other would say ‘no’. The terms are apparently inconsistent.
[59] Where a contract contains terms that are actually inconsistent, in the sense that there is no proper interpretation which can reconcile them, a court may have to rule the “repugnant” term ineffective: Chitty on Contracts, at 13-080; BG Checo International Ltd. v. British Columbia Hydro and Power Authority, 1993 CanLII 145 (SCC), [1993] 1 S.C.R. 12, at p. 24. But this is a rule of last resort. Where a contract contains apparently inconsistent terms, the court must first endeavour to reconcile them. This requires applying principles of contractual interpretation to discern which term the parties intended apply to the situation at issue, and which term ought to be read in such a way as to be inapplicable, thereby removing the apparent inconsistency. As the Supreme Court stated in BG Checo, “Only if an interpretation giving reasonable consistency to the terms in question cannot be found will the court rule one clause or the other ineffective”: at p. 24.
[60] In reconciling apparent inconsistencies, the court favours terms that the parties appear to have tailored to their specific situation. In BG Checo, for example, the Supreme Court provided the following example of reconciling apparently conflicting terms: “…general terms of a contract will be seen to be qualified by specific terms—or, to put it another way, where there is an apparent conflict between a general term and a specific term, the terms may be reconciled by taking the parties to have intended the scope of the general term to not extend to the subject-matter of the specific term”: at p. 24.
[61] Similarly, the ordinary rule for reconciling an apparent conflict between words parties have added to a pre-printed form of contract, and a provision of the pre-printed form itself, is to give the added words greater effect. They are the immediate language that the parties selected to apply to their specific situation, as opposed to the pre-printed form’s general formula meant for use more broadly: Chitty on Contracts, at 13-072.
[62] However, interpretive assumptions such as these may be displaced when the parties have expressly agreed which provision has priority in the event of a conflict: see, for example, Chitty on Contracts, at 13-072.
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