Supreme Court of Canada — There is no special rule of contractual interpretation that applies only to releases. A release is a contract to which the general principles of contractual interpretation apply. Standard of appellate review based on correctness requires an extricable error of law.
Corner Brook (City) v. Bailey
2021 SCC 29 (CanLII)
Wagner C.J. and Abella, Moldaver, Karakatsanis, Côté, Brown, Rowe, Martin and Kasirer JJ.,
July 23, 2021
This case is a continuation of the SCC’s analysis of the rules for contract interpretation expressed in the SCC’s decision in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, at para. 20 (“Sattva”), which held that Courts should interpret contracts as a whole, giving the words used their ordinary and grammatical meaning consistent with the surrounding circumstances known to the parties at the time of formation of the contract.
The SCC directed lower courts to read the contract as a whole, giving the words used their ordinary and grammatical meaning consistent with the surrounding circumstances known to the parties at the time of formation of the contract. Any judicial tendency to interpret releases narrowly is not a function of any special rule, but rather a function of releases themselves.
The case arises in a personal injury context but it is of general application as final releases are relevant in every settlement. An employee of the City of Corner Brook (“CB”) was injured by B, driving her husband’s car. In a separate claim, B sued CB for her own injuries and car damage. B settled with CB and signed a release. Many years later, B launched a third party claim against CB in an action commenced by the CB employee. The trial judge dismissed the third party claim on the basis that it was included in the release of CB.
The Newfoundland and Labrador Court of Appeal (“NLCA”) allowed the appeal on the basis that: 1) What was in the contemplation of the City in drafting the Release is not determinative of mutual intent; 2) It was necessary to determine what was “specifically” contemplated by both parties; and 3) It was not sufficient that the broad general wording of the Release potentially covered a subsequent third party action for contribution if the surrounding circumstances suggested otherwise.
The SCC allowed the appeal and restored the trial judge’s decision barring the third party claim.
The case is important for two reasons:
- It reinforces the interpretation of releases in accordance with the principles in Sattva and establishes that ordinary rules of contract interpretation apply to releases.
- SCC held that NLCA erred in its application of the standard of review of the trial judge’s decision. While the first error may have been an extricable error of law, it was not an error the trial judge made (para. 46). The second and third grounds for overturning the trial decision were not extricable errors of law and therefore, on the basis of the Court’s analysis in Sattva, could not for a basis for appellate intervention.(paras. 48-50) This is instructive as demonstrates that if an appellate reverses a lower court’s decision applying the wrong standard of appellate review, that is itself a ground of appeal.