Contextual consideration in interpreting contracts is not dependent on a finding that the words themselves suggest some ambiguity, but is an integral part of the interpretive process

Schneeberg v. Talon International Development Inc., 2011 ONCA 687, released today is another decision considering the context in which contracts arise as being relevant regardless of ambiguity in language:

[38]        This court has set about explaining the approach to interpreting contracts in a number of recent decisions.  In Dumbrell v. Regional Group of Companies Inc., 2007 ONCA 59, 85 O.R. (3d) 616, a case involving the interpretation of an employment agreement, Doherty J.A. offered the following approach, at para. 53:

The text of the written agreement must be read as a whole and in the context of the circumstances as they existed when the agreement was created. The circumstances include facts that were known or reasonably capable of being known by the parties when they entered into the written agreement: see BG Checo International Ltd. v. British Columbia Hydro and Power Authority, [1993] 1 S.C.R. 12 at 23-24, H.W. Liebig & Co. v. Leading Investments Ltd., [1986] 1 S.C.R. 70 at 80-81, La Forest J.; Prenn v. Simmonds, [1971] 1 W.L.R. 1381 at 1383-84 (H.L.); Staughton, "How Do the Courts Interpret Commercial Contracts?", [(1998) 58 Cambridge L.J. 303], at 307-308.

[39]        In his discussion of the applicable legal principles, at para. 54, Doherty J.A. highlights his view that this contextual consideration is not dependent on a finding that the words themselves suggest some ambiguity, but is an integral part of the interpretive process:

A consideration of the context in which the written agreement was made is an integral part of the interpretative process and is not something that is resorted to only where the words viewed in isolation suggest some ambiguity. To find ambiguity, one must come to certain conclusions as to the meaning of the words used. A conclusion as to the meaning of words used in a written contract can only be properly reached if the contract is considered in the context in which it was made: see McCamus, The Law of Contracts (Toronto: Irwin Law, 2005) at 710-11.

[40]        Doherty J.A. acknowledged, at para. 55, that "[t]here is some controversy as to how expansively context should be examined for the purposes of contractual interpretation", but clarified that "[i]nsofar as written agreements are concerned, the context, or as it is sometimes called the 'factual matrix', clearly extends to the genesis of the agreement, its purpose, and the commercial context in which the agreement was made".

[41]        In Commercial Alcohols Inc. v. Suncor Energy Products Inc., 2008 ONCA 261, 165 A.C.W.S. (3d) 448, at para. 33, Laskin J.A. specifically endorsed the Dumbrell approach to contractual interpretation in describing the process as follows:

The goal of contractual interpretation is to determine the intent of the parties when the contract was made. To do so, the court looks at the words the parties used and the context in which the contract was signed. Goudge J.A. concisely summarized the proper approach to contractual interpretation in his reasons in Kentucky Fried Chicken Canada v. Scott's Food Services Inc., [1998] O.J. No. 4368 at para. 25 (C.A.):

While the task of interpretation must begin with the words of the document and their ordinary meaning, the general context that gave birth to the document or its "factual matrix" will also provide the court with useful assistance.

See also a more extensive discussion of this approach by Doherty J.A. in Dumbrell v. Regional Group of Companies (2007), 85 O.R. (3d) 616 at paras. 47-56 (C.A.).

This approach has been relied on in many other post-Dumbrell decisions of this court: see Ventas, Inc. v. Sunrise Senior Living Real Estate Investment Trust, 2007 ONCA 205, 85 O.R. (3d) 254; 3869130 Canada Inc. v. I.C.B. Distribution Inc., 2008 ONCA 396, 167 A.C.W.S. (3d) 82; RF Real Estate Inc. v. Rogers Telecom Holdings Inc., 2009 ONCA 899, 265 O.A.C. 329; Hawley v. North Shore Mercantile Group, 2009 ONCA 679, 255 O.A.C. 143; Zeubear Investments Ltd. v. Magi Seal Corp., 2010 ONCA 825, 103 O.R. (3d) 578; and SeaWorld Parks and Entertainment LLC v. Marineland of Canada Inc., 2011 ONCA 616.

[42]        I find further support for this approach in the comment of Cromwell J. in Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69, at para. 64, where he stated that a key principle of contractual interpretation "is that the words of one provision must not be read in isolation but should be considered in harmony with the rest of the contract and in light of its purpose and commercial context."