Canada: Contracts: From Illiteracy To Uncertainty Can You Be Certain About The Meaning of Contract?

Last Updated: November 22 2014
Article by Brandon K. Duewel

Knowing what you have promised is important in business.  The financial consequences of contracts can be beneficial or dire.  Lawyers have long advised to "get it in writing" as without a written contract there is too much uncertainty.  It is difficult to enforce an oral agreement.  With the importance of written contracts to successful commercial enterprise, the recent decision of the Supreme Court of Canada in Sattva Capital Corp. v Creston Moly Corp. which evolved the law of how written contract are interpreted, is of considerable importance to all business people.
Sattva v Creston involved a dispute about the interpretation of the amount of a finder's fee owing under the written agreement.  Before the Supreme Court of Canada, the key question was whether the interpretation of a written contract was a question of law or a question of mixed fact and law.  The answer to this question impacts on the certainty of contracts.  If it is a question of law, then there is little deference to the decision at the appeals.  If it is a question of mixed fact and law, then there may be few appeals as many laws limit appeals to questions of law only which could eliminate many appeals of decisions on contractual interpretation, but on those appeals that could proceed, the decision would be given a high level of deference such that those few appeals would be less likely to succeed.

Historically, interpretation of a written contract was treated as a question of law such that an arbitrator (or judge) would be given significant deference and there would be great difficulty in trying to appeal a decision involving interpretation.  This came from Medieval England when jury trials were the norm, juries were usually illiterate, and as a result interpretation of written documents needed to be considered by a judge (as they could read) as a question of law.  In Sattva v Creston, the Supreme Court decided that, since the jury illiteracy rationale no longer applies (as most trials in Canada are no longer before juries and most jury members can read), contractual interpretation is now properly a question of mixed law and fact, in respect of which more deference is owed to arbitrators' decisions.

There are both positives and negatives to this change.  On one hand, there may be greater finality to the decision of trial judges or arbitrators as losing parties may well be less able to appeal decisions.  The litigation may not drag out as long and the parties can get back to doing business sooner.

On the other hand, Sattva may also reduce the commercial certainty provided by written contracts.  With questions of interpretation less likely to make it before the Supreme Court or provincial courts of appeal, there could be less uniformity in the law.  We may not be able to know what a clause or wording means if we have no guidance from appeal courts.  A decision of one trial judge is not binding on other trial judges and contradictory decisions may result.  Further, most of the laws limiting the right to appeal to questions of law were written when contractual interpretation was a "question of law".  The legislatures that enacted the laws may not have intended to remove contractual interpretation from the right to appeal and it remains to be seen whether some or all of those laws will be re-written.

All commercial parties should be mindful of the coming changes and the potential for less certainty caused by the decision in Sattva v Creston

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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