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Contracts - Interpretation - Parole Evidence (Extrinsic Evidence)

. Joannides v. Delaney

In Joannides v. Delaney (Ont CA, 2024) the Ontario Court of Appeal dismisses an easement appeal, where two easements were set out in several documents.

Here the court considers the present of latent ambiguities in the reasment document, and their effects:
[1] This appeal involves the interpretation of two easements. The first easement is a 15-foot wide right-of-way (the “Right-of-Way”) that crosses the servient tenement lands, owned by the Joannides (the “appellants”), and connects the dominant tenement lands, owned by Delaneys (the “respondents”), to a municipal roadway. The second easement (the “Right-of-Access”) provides the respondents with access to a well located on the appellants’ property.

[2] The appellants, applicants in the court below, brought an application in the Superior Court of Justice for, inter alia: 1) a declaration that the Right-of-Way does not include any purpose other than ingress and egress, and specifically does not permit the “turnaround of vehicular activity upon the Right-of-Way”; and 2) a declaration that the Right-of-Access is null, void and expunged.

[3] The respondents, applicants by counter-application, sought, inter alia: 1) a declaration that the respondents enjoy an indefeasible right to the Right-of-Way; 2) a declaration that one of the instruments setting out the details of the Right-of-Way be amended nunc pro tunc to correct an apparent drafting error; 3) an interim and permanent injunction that the appellants keep the Right-of-Way free from all obstructions and vehicles; and 4) general and punitive damages in the amount of $100,000.

[4] The central dispute between the parties is over the respondents’ use of what was referred to in the evidence as the turnaround, located on the Right-of-Way.

....

REASONS BELOW

[20] The application judge found that the disputed turnaround area is included in the Right-of-Way, writing this, at paras. 46-47 of his reasons:
The plain language of the grant of easement is clear that it includes Part 30 for the purpose of ingress and egress. Next, the grant makes reference to Plan 28R-3352, and it shows Part 30 going to the waterfront, and that it includes the ‘turnaround’. Mr. Arthur Hudson [a predecessor of the appellant] believed the Right-of-Way extended to the water.

The Court accepts the Respondent’s [i.e., the Delaneys’] argument that had the intention been to exclude the ‘turnaround’ from the Right-of-Way, one would reasonably expect that Part 30 would have been split in two or more parts, so that the ‘turnaround’ and the ‘well’ would have been shown as their own Parts separate from the Right-of-Way.
[21] In arriving at this conclusion, the application judge found the January 1980 Agreement to include a latent ambiguity when it, and the 1964 Agreement, were applied to the Reference Plan in light of the grant of easement. The application judge’s reasons were somewhat imprecise as to which instrument gave rise to the Right-of-Way. While the application judge suggested the January 1980 Agreement was ambiguous when applied to the Reference Plan, considering the “grant of easement” in the September 1980 Indenture, he recognized that, prior to 1980, the Right-of-Way was “set out” in the 1961 Grant.

[22] This imprecision, however, does not necessarily compromise the application judge’s conclusion. The issue in this case is not whether the Right-of-Way exists or when it came into existence; the easement was already running with the land by the time the January 1980 Agreement came into effect, per the 1961 Grant. The issue is whether the application judge erred in finding that the January 1980 Agreement, and the 1964 Agreement, reveal an ambiguity when applied to the land itself considering the existing easement.

[23] As this court explained in Gibbs v. Grand Bend (Village) (1995), 1996 CanLII 2835 (ON CA), 26 O.R. (3d) 644 (Ont. C.A.), at p. 658, the finding of a latent ambiguity allows judges to rely on extrinsic evidence, including evidence of subsequent conduct, to assist in their interpretation of an agreement: See also Arthur Anderson Inc. v. Toronto Dominion Bank (1994), 1994 CanLII 729 (ON CA), 17 O.R. (3d) 363 (Ont. C.A.), at p. 372, leave to appeal refused, [1994] S.C.C.A. No. 189. According to the application judge, ambiguity arises from the two possible interpretations of the January 1980 Agreement: 1) one that would allow the servient tenement owners (the appellants) to park on the ‘turnaround’, even if doing so blocked ingress and egress by the respondents; and 2) another which would permit the appellants to park on the ‘turnaround,’ but not in a way that would restrict ingress and egress. The extrinsic evidence that led the application judge to conclude that the Right-of-Way was intended to include the turnaround for the purpose of ingress and egress was, among other things, that “for 18 years before the 1980 grant and for 16 years after, the ‘turnaround’ was kept clear to permit use by the [respondents]”. According to the application judge, this evidence supported the position that the turnaround cannot be obstructed.

[24] As discussed above, the application judge further found that there was a drafting error in the September 1980 Indenture. Specifically, he found that the Instrument omitted Part 35, which is to the west of and adjacent to Part 30, from the description of the Right-of-Way, which he found to be “necessary to permit access to and from the [respondents’] Lands.” Thus, pursuant to ss. 159 and 160 of the Land Titles Act, R.S.O. 1990, c. L. 5, he amended the September 1980 Indenture nunc pro tunc to include Part 35.

....

(1) Latent Ambiguity: Using Extrinsic and Subsequent Conduct Evidence

[35] The application judge did not err in his finding of a latent ambiguity. It was therefore open to him to consider extrinsic evidence: Herold Estate, at para. 49. As this court explained in Gibbs, at p. 658, extrinsic evidence may be introduced only in the case of a latent ambiguity for the purposes of ascertaining the intention of the grantor.

[36] The test for finding a latent ambiguity is met where “the description of the land in the deed or grant, when applied to the land itself, raises an issue about the location of a boundary” (emphasis added): Herold Estate, at para. 49. Expressed another way, a latent ambiguity arises when the application of an instrument to the facts or land, not the explicit terms of the instrument, gives rise to various interpretations: Gibbs, at p. 658; see also Taylor v. City Sand & Gravel Ltd., 2010 NLCA 22, 90 R.P.R. (4th) 157, at para. 21; Missilinda of Canada Ltd. v. Husky Oil Operations Ltd., 2007 MBCA 24, 212 Man. R. (2d) 252, at para. 10.

....

[39] The application judge made no extricable error in law. He clearly understood, and properly applied, the test for the finding of a latent ambiguity, which requires that the relevant instrument raise an issue about the property right when applied to the land: Herold Estate, at para. 49. And, in the end, he found there to be a latent ambiguity “when [the January 1980 Agreement] and Instrument 14491 [the 1964 Agreement] are applied to [the Registered Plan] in light of the grant of easement”.

[40] Again, in the absence of an extricable error of law, the application judge’s finding of a latent ambiguity is entitled to deference: Casurina Ltd. Partnership v. Rio Algom Ltd. (2004), 2004 CanLII 30309 (ON CA), 40 B.L.R. (3d) 112 (Ont. C.A.), at para. 34, leave to appeal refused, [2004] S.C.C.A. No. 105, citing with approval, Chitty on Contracts, 28 ed. (London: Sweet & Maxwell, 1998) at para. 12-046; Keefer Laundry Ltd. v. Pellerin Milnor Corp, 2009 BCCA 273, 57 B.L.R. (4th) 161, at paras. 57-60.

[41] Where the words in the grant of a right-of-way are unclear, the subsequent conduct, historic use, and circumstances surrounding the use of the property subject to the easement, are particularly important to understand the nature and extent of the rights conveyed: Arthur Anderson, at p. 372; Markowski v. Verhey, 2020 ONCA 472, 26 R.P.R. (6th) 1, at para 32, citing Square-Boy Limited v. The City of Toronto, 2017 ONSC 7178, at para. 33; Laurie v. Winch, 1952 CanLII 10 (SCC), [1953] 1 S.C.R. 49, at p. 56. Here, there was evidence that, since 1962, the appellants and their predecessors consistently kept the turnaround clear so that use of the easement would not be blocked. It was therefore open to the application judge to rely on the extrinsic evidence that the respondents’ predecessors’ use of the turnaround was “open and notorious” when the 1980 instruments were formed.

[42] Furthermore, the application judge appropriately admitted and relied on evidence of subsequent conduct in finding that the appellants’ predecessors had kept the turnaround free because they felt “obliged to keep the turnaround clear, because it was part of the Right-of-Way on Part 30”, and that the respondent’s predecessor had used the turnaround since the early 1960s and did not seek permission from the appellants’ predecessors to use it.

[43] This subsequent conduct evidence was not just admissible in resolving the latent ambiguity in the January 1980 Agreement, for reasons explained by Strathy C.J.O. in Shewchuk, at paras. 53-54, it was also reliable:
In the usual course, evidence of subsequent conduct will be more reliable if the acts it considers are the acts of both parties, are intentional, are consistent over time, and are acts of individuals rather than agents of corporations.

...

Evidence of subsequent conduct will have greater weight if it is unequivocal in the sense of being consistent with only one of the two alternative interpretations of the contract that generated the ambiguity triggering its admissibility. […] For instance, in Chippewas of Mnjikaning First Nation v. Ontario, 2010 ONCA 47, 265 O.A.C. 247 (Ont. C.A.), at para. 162, leave to appeal to S.C.C. refused, [2010] S.C.C.A. No. 91 (S.C.C.), this court found that the parties' subsequent conduct was of assistance in determining which of two reasonable interpretations of a contract should be accepted because the conduct in question was "overwhelmingly consistent only with the trial judge's interpretation."
[44] The evidence that the parties’ predecessors had kept the turnaround clear for decades, before and after 1980, “because it was part of the Right-of-Way”, is overwhelmingly consistent with an interpretation that denies the right to park in a manner that limits the respondents’ right to ingress or egress by obstructing use of the turnaround. As the application judge concluded, the only discernible reason for extending the right of way to the “turnaround” area of Part 30 was to permit the owners of the dominant tenement to use it to turn their vehicles around, in order to allow them to avoid having to back up or down the steep driveway.

[45] In light of the extrinsic evidence discussed above, it was open to the application judge to accept the importance of the ‘turnaround’ to the use of the Right-of-Way, and to conclude that, if the original intention behind the Right-of-Way was to permit the appellants and their predecessors to both park on and block the ‘turnaround’, one would have expected that “[a] release of the [Right-of-Way] at the ‘turnaround’ would [have been] made explicit” in either the September 1980 Indenture or January 1980 Agreement.
. Goodlife Fitness Centres Inc. v. Rock Developments Inc.

In Goodlife Fitness Centres Inc. v. Rock Developments Inc. (Ont CA, 2019) the court cautions on the use of evidence of negotiations in aid of interpreting a contract:
[15] Third, and most important, the application judge erred in relying on the negotiations to interpret the agreements. This court has repeatedly cautioned against looking to negotiations to interpret a contract. The basic principles of commercial contract interpretation were summarized in Salah v. Timothy’s Coffees of the World Inc., 2010 ONCA 673 (CanLII), 268 O.A.C. 279. At para. 16, Winkler C.J.O. stated:
When interpreting a contract, the court aims to determine the intentions of the parties in accordance with the language used in the written document and presumes that the parties have intended what they have said. 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. In interpreting the contract, the court must have regard to the objective evidence of the “factual matrix” or context underlying the negotiation of the contract, but not the subjective evidence of the intention of the parties. [Emphasis added.]
[16] Likewise, in The Canada Trust Company v. Browne, 2012 ONCA 862 (CanLII), 115 O.R. (3d) 287, Feldman J.A. said at para. 71:
While the scope of the factual matrix is broad, it excludes evidence of negotiations, except perhaps in the most general terms … Ultimately, the words of the agreement are paramount.
[17] Brown J.A. cited this in his decision in Weyerhaeuser Company Limited v. Ontario (Attorney General), 2017 ONCA 1007 (CanLII), 77 B.L.R. (5th) 175, at para. 112:
Canadian common law generally treats evidence of the parties’ specific negotiations as inadmissible for purposes of interpreting a contract … evidence of the factual matrix cannot operate as a kind of alternate means by which an adjudicator constructs a narrative about what the parties must have discussed or intended in their negotiations. In other words, evidence of the factual matrix cannot be used to do indirectly that which the principles of contract interpretation do not permit doing directly. [Emphasis in original; citations omitted.]



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Last modified: 09-07-24
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