Thursday, May 24, 2012

Context matters in interpretation of contracts

Words never "speak for themselves". They have to be placed in a factual matrix. Today's decision in Lloyds Syndicate 1221 (Millennium Syndicate) v. Coventree Inc., 2012 ONCA 341 has some helpful language in this regard:

[17]       However, the words of a contract alone may not be determinative of the objective intention of the parties.  Contracts are not to be looked at in a vacuum.  Rather, it is "perfectly proper, and indeed may be necessary, to look at the surrounding circumstances in order to ascertain what the parties were really contracting about": Hill v. Nova Scotia (Attorney General), [1997] 1 S.C.R. 69, at para. 20.  The court's search for the intention of the parties may be aided by reference to the surrounding circumstances or factual matrix at the time of the negotiation and execution of the contract, as viewed objectively by a reasonable person:  see also Ventas Inc. v. Sunrise Senior Living Real Estate Investment Trust et al., 2007 ONCA 205, 85 O.R. (3d) 254. 

[18]       Words used in a contact are often better understood when the context of their use is understood.  The purpose of the context is to determine what a reasonable person in the context of the surrounding circumstances would have understood the agreement to be.  The subjective intentions of the parties are not relevant.  Consideration of the surrounding circumstances is generally restricted to the circumstances known to both parties at the time of the execution of the contract.  These circumstances include facts that were known or reasonably capable of being known by the parties when they entered into the contract.  See: Dumbrell v. Regional Group of Companies Inc., 2007 ONCA 59, 85 O.R. (3d) 616, at paras. 50, 53 and 56; Ventas, at para. 24; and King v. Operating Engineers Training Institute of Manitoba Inc., 2011 MBCA 80, 341 D.L.R. (4th) 520, at paras. 69-73.  

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