Judicial interpretation of contract and surrounding factual matrix entitled to deference on appeal

Actuate Canada Corporation v. Symcor Services Inc., 2016 ONCA 217:

[37]       At paras. 46 to 53 of his reasons, the motion judge set out the relevant principles to guide his interpretation of the parties’ commercial contract. He noted that the contract was to be interpreted 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; by determining the intention of the parties in accordance with the language they have used; with regard to objective evidence of the factual matrix underlying the negotiation of the contract to the extent that there is any ambiguity in the contract; and in a fashion that accords with sound commercial principles and good business sense and that avoids a commercial absurdity: Ventas, Inc. v. Sunrise Senior Living Real Estate Investment Trust, 2007 ONCA 205, 85 O.R. (3d) 254, at para. 24.

[38]       Referring to Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at paras. 47, 57 and 58, the motion judge noted the need to read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances. He said that “surrounding circumstances” should consist of only objective evidence of the background facts at the time of execution of the contract and should never be allowed to overwhelm the words of the agreement.

[39]       Both parties acknowledge that the motion judge’s decision interpreting their contract is entitled to deference. Contract interpretation involves issues of mixed fact and law and as such is generally subject to a standard of palpable and overriding error. Appellate interference is also warranted where the motion judge has made an extricable error of law. Extricable errors of law include: (1) the application of an incorrect principle; (2) the failure to consider a required element of a legal test; and (3) the failure to consider a relevant factor: Sattva, at para. 53.

[40]       In Sattva, Rothstein J. warned that courts must be “cautious in identifying questions of law in disputes over contractual interpretation”, and careful to ensure that the proposed ground of appeal has been properly characterized. “The close relationship between the selection and application of principles of contractual interpretation and the construction ultimately given to the instrument means that the circumstances in which a question of law can be extricated from the interpretation process will be rare”: Sattva, at paras. 54-55.