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Contract - Interpretation - Surrounding Circumstances. James Bay Resources Limited v. Mak Mera Nigeria Limited
In James Bay Resources Limited v. Mak Mera Nigeria Limited (Ont CA, 2025) the Ontario Court of Appeal allowed an appeal - here from orders that "Mak Mera to pay James Bay the amount of US$405,000, which she characterized as “advances”" and "damages for defamation in the amount of $200,000".
Here the court considers the Sattva 'surrounding circumstances' contract interpretation principle:[42] Ascertaining the surrounding circumstances in which a contract was made requires the court to know “the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating”: Sattva, at para. 47, quoting Reardon Smith Line v. Hansen-Tangen, [1976] 3 All E.R. 570 (H.L.), at p. 574, per Lord Wilberforce. . Ontario First Nations (2008) Limited Partnership v. Ontario Lottery and Gaming Corporation
In Ontario First Nations (2008) Limited Partnership v. Ontario Lottery and Gaming Corporation (Ont CA, 2021) the Court of Appeal considered the general interpretive approach applicable to contract issues, including the role of 'surrounding circumstances':(b) Applicable principles of contractual interpretation
[46] The parties agree that the appeal judge correctly stated the applicable principles of contractual interpretation. Those principles were discussed in the Supreme Court’s unanimous decisions in Sattva, per Rothstein J., and more recently in Corner Brook, per Rowe J. They may be summarized as follows:1. Courts should take “a practical, common-sense approach not dominated by technical rules of construction. The overriding concern is to determine ‘the intent of the parties and the scope of their understanding’”: Sattva, at para. 47 (citations omitted).
2. Courts must “read the contract as a whole, giving the words used their ordinary grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract”: Sattva, at para. 47; Corner Brook, at para. 20.
3. The surrounding circumstances should be considered in contractual interpretation. “[A]scertaining contractual intention can be difficult when looking at words on their own, because words do not have an immutable or absolute meaning”: Sattva, at para. 47. The meaning of words in a contract often derives from contextual factors, such as the purpose of the agreement and the nature of the relationship it creates: Sattva, at para. 48. A contract is not made in a vacuum and must be placed in its proper setting. Interpreting a commercial contract requires knowledge of the commercial purpose of the contract, based on “the genesis of the transaction, the background, the context, the market in which the parties are operating”: Sattva, at para. 47, citing Reardon Smith Line Ltd. v. Hansen-Tangen; Hansen-Tangen v. Sanko Steamship Co., [1976] 3 All E.R. 570 (U.K. H.L.), at p. 574, per Lord Wilberforce.
4. The nature of the evidence that may be considered as part of the surrounding circumstances will vary from case to case, but should include only “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”. That determination is inherently fact specific: Sattva, at paras. 55, 58 (citation omitted); Corner Brook, at para. 20.
5. The surrounding circumstances should never be allowed to overwhelm the words of the agreement. The surrounding circumstances are considered in order “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”. Courts cannot use the surrounding circumstances to deviate from the text of the contract to the point that the court “effectively creates a new agreement”: Sattva, at para. 57; Corner Brook, at para. 20. . Preston v. Cervus Equipment Corporation
In Preston v. Cervus Equipment Corporation (Ont CA, 2024) the Ontario Court of Appeal allowed an appeal, here involving the interpretation of a settlement release and agreement emanating from a wrongful dismissal claim:[12] In regard to the interpretation of the Settlement Documents, the motion judge relied on Corner Brook (City) v. Bailey, 2021 SCC 29, [2021] 2 S.C.R. 540, at para. 20, as follows:As noted in Corner Brook, a release is an agreement and is to be interpreted in accordance with the rules of contractual interpretation. Like any agreement, the goal of contractual interpretation is to ascertain the objective, mutual intentions of the parties at the time of the formation of the Release. This includes having regard to the factual matrix or surrounding circumstances. Of course, the surrounding circumstances are intended as an interpretative aid and are not to overwhelm the words of the Release. The surrounding circumstances are also not to be used to deviate from the text to effectively create a new agreement ... . [13] The motion judge also cited Corner Brook, at para. 35, for the proposition, “[s]ometimes the ordinary meaning of the words and the surrounding circumstances come into tension, and courts must decide whether to rely on the surrounding circumstances to refine the meaning of the words, or whether doing so would impermissibly overwhelm the words of the agreements, in which case the words must override.”
[14] Further, he took guidance from the following statement in Corner Brook, at para. 38:For these reasons, releases may tend to lead to dissonance between the words of the agreement on their face and what the parties seem to have objectively intended based on the surrounding circumstances, with greater regularity than other types of contracts… In resolving this tension, courts can be persuaded to interpret releases narrowly more so than other types of contracts, not because there is any special rule of interpretation that applies to releases, but simply because the broad wording of releases can conflict with the circumstances, especially for claims not in contemplation at the time of the release. The broader the wording of the release, the more likely this is to be so. ....
Analysis
[20] The motion judge correctly cited the applicable law, noting that pursuant to Corner Brook, releases are to be interpreted in the same manner mandated by Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633. He also correctly observed that the factual matrix of the case could not overwhelm the ordinary meaning of the words used in the release.
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[23] In our view, the motion judge made three extricable legal errors in his analysis. First, he allowed his interpretation of the factual matrix to overwhelm the actual wording of Settlement Documents and effectively rewrote the contract between the parties. In this regard, we do not accept his conclusion that the statement that the release of stock units applied only to stock or share awards which have either not been awarded or not been redeemed. The parties could have specified this result but chose not to do so. Instead, they used the following specific language: “I further declare that I have no entitlement under or from, or any claim of any nature or kind against the Releasees in respect of, any bonus, share award, stock option, deferred share or similar incentive plan offered by or on behalf of the Releasees.”
[24] Second, we find that the motion judge’s reliance on the Supreme Court’s guidance in Corner Brook to the effect that broad releases may be narrowly construed was misplaced in the circumstances of the case at bar. While it is true that the Settlement Documents included a broad release of claims, the language regarding the release to claims for stock options and other share awards was specific.
[25] Third, it is not the province of a judge interpreting minutes of settlement to evaluate the economic benefits conferred under the settlement, absent a party being under disability.
[26] In our view, the words of the Settlement Documents should be given their ordinary meaning, which included a release of any payments to be made under the Plan. In this regard we note the following from the Minutes of Settlement:The entitlements set out in these Minutes of Settlement, including the Settlement Payment, are inclusive of any and all entitlements whatsoever that Cervus may owe, or which may have accrued, to Mr. Preston pursuant to statute, contract, common law or otherwise. [27] Clearly the payment of the settlement funds was intended to cover, among other things, all claims and entitlements owed or accrued pursuant to any contract, including Mr. Preston’s employment contract and the Plan. It is evident looking at the Settlement Documents that they were intended to be final and bring an end to the parties’ relationship and obligations. . Cannon v. Gerrits
In Cannon v. Gerrits (Div Court, 2022) the Divisional Court considered the leading case of Sattva, here regarding surrounding circumstances in contractual interpretation (motivation):[54] In Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 57, Rothstein J. writing for the Supreme Court of Canada stated:[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 (Hayes Forest Services, at para. 14; and Hall, at p. 30). The goal of examining such evidence is to deepen a decision-maker’s understanding of the mutual and objetive 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 (Hall, at pp. 15 and 30-32). 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 (Glaswegian Enterprises Inc. v. B.C. Tel Mobility Cellular Inc. (1997), 1997 CanLII 4085 (BC CA), 101 B.C.A.C. 62). [55] As well, the appellants rely on J.M.B. Cattle v. Kaufman, 2015 ONSC 7372, at para. 98, wherein Price J. stated a seller’s motivation is not relevant as, “either they have the right to terminate the APS or they do not.” . 1797472 Ontario Inc. v. Independent Electricity System Operator
In 1797472 Ontario Inc. v. Independent Electricity System Operator (Ont CA, 2024) the Ontario Court of Appeal dismissed an appeal, here engaging contract interpretation issues in an electricity supply context.
Here the court considers some basics of contract interpretation:[11] The correctness standard applies in the of review of the application judge’s interpretation of s. 2.1(b) of standard form FIT 1 Contracts: Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23, at para. 4.
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[13] The application judge set out the relevant principles of contract interpretation in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at paras. 47-48; Prism Resources Inc. v. Detour Gold Corporation, 2022 ONCA 326, 162 O.R. (3d) 200, at para. 16; Ledcor Construction, at paras. 31-32; and EPCOR Electricity Distribution Ontario Inc. v. Municipal Electric Association Reciprocal Insurance Exchange, 2022 ONCA 514, at para. 55. She noted that the contractual provisions at issue must not be read in isolation but considered “in harmony with the rest of the contract in light of its purposes and commercial context.” As she correctly observed, the “relevant surrounding context is generally considered to be that which was present at the time the contract was made, not subsequently”: Prism Resources, at para. 16(iii). . Briggs v. Durham (Police Services Board)
In Briggs v. Durham (Police Services Board) (Ont CA, 2022) the Court of Appeal considered principles of contractual interpretation:[41] In accordance with Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 47, a contract must be read as a whole, having regard to the ordinary and grammatical meaning of the words used, consistent with the surrounding circumstances or factual matrix. If based on a review of the wording of the agreement and the factual matrix, there is an ambiguity in the meaning of the agreement, the court can then have regard to external or parol evidence, which may include the subsequent conduct of the parties. However, in doing so, the court must give evidence of subsequent conduct the “appropriate weight having regard to the extent to which its inherent dangers are mitigated in the circumstances of the case at hand, to infer the parties’ intentions at the time of the contract’s execution”: Shewchuk v. Blackmont Capital Inc., 2016 ONCA 912, 404 D.L.R. (4th) 512, at para. 56. . White v. Gauthier
In White v. Gauthier (Ont CA, 2023) the Court of Appeal cited authority for 'contextual' contract interpretation:[3] We see no error in the trial judge’s reasons. The contemporary rules of contractual interpretation require a contextual consideration of the language used in the agreement. The interpretative process must engage the factual matrix in which the contract was created: see G. Hall, Canadian Contractual Interpretation Law, 4ed 2020, Ch. 1-2.
[4] The trial judge did exactly that. He interpreted the agreement consistent with the surrounding circumstances in accordance with the judgment of the Supreme Court of Canada in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53. . Spina v. Shoppers Drug Mart Inc.
In Spina v. Shoppers Drug Mart Inc. (Ont CA, 2024) the Ontario Court of Appeal considered class action franchise appeals (direct and cross) from summary judgment decisions.
Here the court considers Sattva principles of contractual interpretation:[69] The goal of contract interpretation is to determine the objective intentions of the parties. The contract must be read 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”: Sattva, at para. 47.
[70] The surrounding circumstances, while relied on in the interpretative process, “must never be allowed to overwhelm the words of the agreement”: Sattva, at para. 57 (citations omitted). The surrounding circumstances should only consist of “objective evidence of the background facts at the time of execution of the contract”: Sattva, at para. 58 (citation omitted).
[71] Subject to these requirements and the parole evidence rule, the surrounding circumstances include “absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable [person]” at the time the agreement was entered into: Sattva, at para 58, quoting from Investors Compensation Scheme Ltd. v. West Bromwich Building Society, [1998] 1 All E.R. 98 (H.L.), at p. 114.
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