ONTARIO – Contract Interpretation – It is an error of law to decide that an agreement was reached based on the subjective intention of one side of the bargain. Interpretation of contract requires the court to read the contract as a whole, giving the words their ordinary and grammatical meaning consistent with the surrounding circumstances at the time the contract was formed. The court is not to consider the subjective intentions of the parties. The interpretive process should consist only of objective evidence of the background facts at the time of the execution of the contract.

ONTARIO – Appeal – Standard of Review – While there is a general deference to trial courts on contractual interpretation, questions of law are reviewed on the correctness standard.

Lozon v Lozon, 2023 ONCA 645 (CanLii)
2023 ONCA 645
Ontario Court of Appeal (Gillese, Benotto and Copeland JJ.A)

Scott Lozon, the appellant, was the son of the respondents Gerald and Arlene Lozon and the brother of the respondent Bryan Lozon. The respondent Patrick Lozon was Gerald’s brother. The issue under appeal was the enforceability of the Minutes of Settlement the family members and the corporation signed to settle three lawsuits.

The first lawsuit was between 1061154 Ontario Inc., a company owned by Gerald, Arlene, and Scott to obtain possession of a log cabin. The parties to this lawsuit attended mediation, which was not successful. A list of equipment was prepared at the mediation and titled “Lozon Mediation -January 31, 2017”.

The other two lawsuits were for damages for personal injuries arising from a physical altercation between Scott, Gerald, Arlene, Bryan, and Patrick.

In 2022, the parties attended a mediation which resulted in Minutes of Settlement (“2022 MOS”). The 2022 MOS provided that:

1. Cash payments totalling $1.12 million were to be paid by Gerald and Arlene to Scott in two installments;
2.  A cash payment of $70,000 was to be paid by Scott to Bryan;
3.  Scott and his spouse were to vacate the log cabin; and
4.  Scott would receive certain equipment, as identified in the 2017 Mediation List. (para. 4)

The MOS were circulated to counsel for the parties and approved. The money owed to Scott was initially put in trust; however after a dispute about what equipment Scott was entitled to receive, the funds were returned to the Respondents. The equipment dispute relates to a tractor and snowmobiles. (para.5)

The MOS relating to equipment stated:

“Scott Lozon shall receive or retain the following property, as identified by line item in the attached 4-page schedule titled “Lozon Mediation – January 31, 2017”: 5 (International – DSI), 8, 15 (International Tractor – not enclosed, red – 2-wheel drive-1496), 17, 20, 26 (snowmobiles only, less the El Tigre previously owned by Scott and Bryan Lozon’s mother), 27, 29, 30, 33 and 35.” (para.6)

The 2017 Mediation List referred to the tractor as “International 1466”. The 2022 MOS referred    to the tractor as 1496 in error. The Respondents argued that the numbering created confusion and as a result, that there was no settlement agreement. (para.7) The 2022 MOS referenced a snowmobile owned by Arlene and snowmobiles owned by Bryan. Bryan argued that as he was not a participant in the 2017 Mediation, his property should not form part of the 2017 Mediation List which was appended to the 2022 MOS. (paras. 7–8)

Scott brought motions to enforce the 2022 MOS. The motions were dismissed on the basis that there was a misunderstanding as to what items were to be included and removed from the log cabin and therefore, there was no agreement and no intent to cover the snowmobiles and tractor in the 2022 MOS. (para.10) The motions judge did not give reasons.

ONCA Analysis

The ONCA held that while there is a general deference to decision makers on contractual interpretation, questions of law are reviewed on the correctness standard pursuant to Sattva Capital Corp v Creston Molly Corp. 2014 SCC 53. (para. 14)

The ONCA also held that the test to decide if an agreement was reached is based on “an objective reading of the language of the parties to reflect their agreement” as set out in Olivieri v Sherman 2007 ONCA 491. It is an error of law to determine if an agreement was reached based on the parole evidence of the subjective intentions of one party. It is also an error of law to decide that an agreement was reached based on the subjective intention of one side of the bargain. (para. 15)

The Court concluded that the motion judge erred by basing his decision on the subjective intentions of the parties. The objective evidence was that when the 2022 MOS was drafted, the parties chose to use the 2017 Mediation List of equipment and the List was amended, for example by adding words that excluded a particular snowmobile from the List. The 2017 Amended Mediation List was included in the 2022 MOS that was circulated and reviewed by all parties and counsel.

The ONCA held that it was clear to an objective reader that there was a minor typographical error with respect to the tractor model number 1466 because the 2022 MOS referred to the model number as 1496. Gerald’s evidence that he relied upon the incorrect number 1496 would lead to an absurd interpretation of the MOS and therefore, the ONCA held that Scott was entitled to the tractor with model number 1466. (paras.18 and 19)

The 2017 Amended Mediation List was incorporated into the 2022 MOS and all parties participated in the 2022 Mediation. The ONCA did not agree with Bryan’s argument that because he did not participate in the 2017 Mediation that, despite being listed on the 2017 Mediation List, his snowmobiles and trailer were not part of the property to which Scott was entitled to select.(para.18)

Specifically, the ONCA held, “ in short, the law on contractual interpretation requires the court to read the contract as a whole, giving the words their ordinary and grammatical meaning consistent with the surrounding circumstances at the time the contract was formed. The court is not to consider the subjective intentions of the parties. The interpretive process should consist only of objective evidence of the background facts at the time of the execution of the contract: Sattva, at paras. 57-59.” (para. 17)

The ONCA granted Judgment in accordance with the 2022 MOS and awarded costs to the Appellant.