January 6, 2017

Incomplete Disclosure

December 15, 2016


November 23, 2016

Is Contract Interpretation Law?


Cts Commentaries


Côté’s Commentaries

© J.E. Côté 2016

Is Contract Interpretation Law?

One of the most vexed questions for courts to decide, is what is a question of law and what is a question of fact. Many consequences can come from such characterization.

We all used to think that we knew one thing. There was no appellate deference to trial court decisions on questions of law. But then the Supreme Court of Canada started giving extra levels of deference to administrative tribunals. More recently, in Sattva Cap. Corp. v. Creston Moly Corp., it held that generally interpretation of a contract is not a question of law and so appellate deference is owed: see 2014 SCC 53, [2014] 2 SCR 633. (See also Heritage Cap. Corp. v. Equitable Tr. Co. 2016 SCC 19, [2016] 1 SCR 306.) In some cases one could see why that would be. Sometimes two people do a poor job of drafting their own contract, often without lawyers. That wording will never arise again, and so the whole situation is unique.

But the reasons given in Sattva for giving appellate deference to the trial judge patently would not apply in many cases. Sattva speaks of “rare” exceptions, but such situations would not be rare at all. (The Supreme Court has since recognized that, as described below.)

There is another problem. If the rule set out in Sattva is correct, then it produces the opposite result to that found in a number of other situations. So how to draw the line between the Sattva situation and those other situations, would be important but puzzling.

To give one example, an insurance policy is usually a contract. But sometimes legislation sets the wording for a whole class of insurance policies, especially for automobiles. And sometimes legislation deems a certain clause or set of clauses to be incorporated into all policies. Would such statutory policies or clauses be interpreted as legislation (ordinarily with no deference on appeal)? Or like contracts (ordinarily with deference)?

Another boundary issue comes from the law telling courts to follow precedent on interpretation of contracts. That goes beyond following the interpretation of common wordings. It also extends to principles of interpretation. What is the boundary between that and the Sattva situation?

The Alberta Court of Appeal has held several times that Sattva cannot be intended to require appellate deference where the contract is a standard-form contract of adhesion. It would be strange to apply different interpretations of the same words in the same contract in different lawsuits. After all, one of the aims of standard-form contracts is certainty and uniformity. See Vallieres v. Vozniak 2014 ABCA 290, 580 AR 326, (¶ʼs 12-13); Stewart Est. v. 1088294 Alta. 2015 ABCA 357, 607 AR 201 (¶ʼs 269-84); Ledcor Constr. v. Northbridge Indem. Ins. Co. 2015 ABCA 121, 599 AR 363 (¶ʼs 12-18).

The Supreme Court reversed that Ledcor decision on the merits (i.e. as to how to interpret the insurance policy there). However, they “clarified” the standard of review in Sattva, and announced an “exception” to Sattva which is quite similar to that of the Alberta Court of Appeal: 2016 SCC 37, [2016] __ SCR __ (¶ʼs 4, 24-48). The Supreme Court stated that the issue of interpreting a contract is a question of law attracting no appellate deference, if three conditions are met:

a. the contract is a standard-form contract,
b. its interpretation has precedential value, and
c. there is no meaningful factual matrix specific to the particular parties to assist in interpretation.

That decision about standard of review was almost inevitable in Ledcor. The words in dispute there (or almost identical words) are used in a great many insurance policies, and in almost all policies of one or two classes. The courts of Canada, the U.S.A., and England have interpreted them repeatedly, and those decisions all treat the question as one of law and precedent. It is rare to negotiate such words individually. Indeed these words are common in construction situations where most of the persons insured have had no contact whatever with the insurer or the insurance broker.

If this new Ledcor decision is merely an exception to Sattva, or the same as the “narrow” exception mentioned in Sattva, then many of the problems, puzzles, and lack of rationale for Sattva’s grant of appellate deference, probably will persist in many situations.

Any solicitor innocently trying to advise clients and predict what the courts will do, deserves some sympathy. Probably his or her best strategy is to stay tuned to Canlii, and await the next thrilling episode.

– Hon. J.E. Côté