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Contracts - Interpretation - Pre-Contract Negotiation

. Corner Brook (City) v. Bailey

In Corner Brook (City) v. Bailey (SCC, 2021) the Supreme Court of Canada noted that the law of the use of pre-contract negotiations in contract interpretation is unsettled:
[56] I make one final observation. The application judge also considered the pre-contract negotiations in reaching his conclusion that the parties mutually intended to release Mrs. Bailey’s claim: paras. 30-38. The Court of Appeal did too, but reached a different conclusion: paras. 67-68. Neither party argued that there was anything wrong with this approach by the courts below. However, there is a longstanding, traditional rule that evidence of negotiations is inadmissible when interpreting a contract: see Resolute FP Canada Inc. v. Ontario (Attorney General), 2019 SCC 60, at para. 100, per Côté and Brown JJ., in dissent; Chartbrook Ltd. v. Persimmon Homes Ltd., [2009] UKHL 38, [2009] 1 A.C. 1101; Hall, at pp. 423-32; A. Swan, J. Adamski and A. Y. Na, Canadian Contract Law (4th ed. 2018), at pp. 745-48; K. Lewison, The Interpretation of Contracts (7th ed. 2020), at pp. 117-31; J. D. McCamus, The Law of Contracts (3rd ed. 2020), at pp. 809-13. Justices Côté and Brown observed in Resolute that this rule “sits uneasily” next to the approach from Sattva that directs courts to consider the surrounding circumstances in interpreting a contract: para. 100. Hall and the authors of Canadian Contract Law both emphasize the difficulty in drawing a principled distinction between the circumstances surrounding contract formation and negotiations.

[57] I leave for another day the question of whether, and if so, in what circumstances, negotiations will be admissible in interpreting a contract. That issue needs to await a case where it has been fully argued and is necessary in order to decide the appeal. In this case, the application judge did not consider the negotiations to be determinative in interpreting the contract one way or the other: see paras. 37-38 and 41.


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Last modified: 01-01-23
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