Thursday, September 15, 2016

Interpretation of a Standard Form Contract not subject to appellate deference

Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 holds that the interpretation of contracts is a question of mixed fact and law and so an appeal court should be deferential to the decision below. 

Perhaps surprisingly, the Supreme Court in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37 held this rule does NOT apply to standard form contracts and no deference is owed to the court below. 

The appropriate standard of review is correctness. The interpretation of a standard form contract should be recognized as an exception to the Court's holding in Sattva Capital Corp. that contractual interpretation is a question of mixed fact and law subject to deferential review on appeal. 

The first reason given in Sattva for concluding that contractual interpretation is a question of mixed fact and law — the importance of the factual matrix — carries less weight in cases involving standard form contracts. Indeed, while a proper understanding of the factual matrix of a case is crucial to the interpretation of many contracts, it is less relevant for standard form contracts because the parties do not negotiate the terms. The contract is put to the receiving party as a take‑it‑or‑leave‑it proposition. Factors such as the purpose of the contract, the nature of the relationship it creates, and the market or industry in which it operates should be considered when interpreting a standard form contract, but they are generally not inherently fact specific and will usually be the same for everyone who may be a party to a standard form contract. 

Moreover, the interpretation of a standard form contract itself has precedential value and can therefore fit under the definition of a pure question of law. In general, the interpretation of a contract has no impact beyond the parties to a dispute. While precedents interpreting similar contractual language may be of some persuasive value, it is often the intentions of the parties, as reflected in the particular contractual wording at issue and informed by the surrounding circumstances of the contract, that predominates. In the case of standard form contracts, however, judicial precedent is more likely to be controlling. Establishing the proper interpretation of a standard form contract amounts to establishing the correct legal test, as the interpretation may be applied in future cases involving identical or similarly‑worded provisions. The mandate of appellate courts — ensuring consistency in the law — is also advanced by permitting them to review the interpretation of standard form contracts for correctness. The result of applying the interpretation in future cases will of course depend on the facts of those cases.

Of the Law Societies of Upper Canada and Nunavut 

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