To overturn a trial court's interpretation of a contract on
appeal, it is not enough that the trial court was wrong, it must be
really wrong, the Supreme Court of Canada recently affirmed in
Heritage Capital Corp v Equitable Trust Co, 2016 SCC 19
[Heritage]. The Court confirmed that the standard of
appellate review applicable to a lower court's interpretation
of a contract is palpable and overriding error, not merely
correctness, absent an extricable error of law.
In an important 2014 ruling arising from an arbitrator's
decision, the Supreme Court of Canada held in Creston Moly
Corp v Sattva Capital Corp, 2014 SCC 53
[Sattva] that the historical approach to
contractual interpretation, where "the legal rights and
obligations of the parties under a written contract was considered
a question of law," should be abandoned. Instead, contractual
interpretation was recognized as involving "issues of mixed
fact and law as it is an exercise in which the principles of
contractual interpretation are applied to the words of the written
contract, considered in light of the factual matrix."
Questions of mixed fact and law attract the palpable and overriding
error standard of review rather than correctness. This means that
an appeal court will only second-guess a decision from a
fact-finder where the decision is unreasonable, or commits a
palpable and overriding error, not merely because the appeal court
would decide the case differently itself. Sattva
also provided for the possibility of identifying "an
extricable question of law", attracting the correctness
standard, such as "application of an incorrect principle, the
failure to consider a required element of a legal test, or the
failure to consider a relevant factor."
Some commentators after Sattva questioned the
scope of the decision. Were its comments on contractual
interpretation binding or obiter? Could it be
limited to its unique facts, which involved determining "the
appropriate standard of review to be applied to commercial arbitral
decisions"? Or was it more generally applicable?
The Supreme Court of Canada in Heritage confirmed for
the first time that Sattva applies more generally, and
specifically to decisions from lower courts. In Heritage,
Lougheed Block Inc. and the City of Calgary contracted for the City
to make certain incentive payments as a result of a building owned
by Lougheed being designated a "Municipal Historical
Resource" under Alberta's Historical Resources
Act (HRA). At the Court of Appeal, a majority held
that the applicable standard of review of the chambers judge's
decision was correctness, while a dissent held that the
interpretation of the contract was an issue of mixed fact and law
that attracted the deferential standard of palpable and overriding
error. At the Supreme Court of Canada, the Court unanimously sided
with the dissenting justice on the standard of review.
The Supreme Court affirmed that contractual interpretation
involves issues of mixed fact and law and "deference to
fact-finders furthers the goals of limiting the number, length and
cost of appeals, and of promoting the autonomy and integrity of
trial proceedings." The Court recognized that the chambers
judge's interpretation of the HRA attracted a
standard of correctness since statutory interpretation is a
question of law. However, the Court did not find the same standard
applied to the interpretation of the contract, even though the
interpretation of the contract depended, to some extent, on the
interpretation of the statute. Instead, the Court held that the
dissenting justice "was right to conclude that ... the
palpable and overriding error standard applies to the chambers
judge's interpretation of the [contract]."
Heritage thus confirms that in the ordinary
case, appellate review of questions of contractual interpretation
are reviewed on a standard of palpable and overriding error.
Sattva is not limited to arbitration decisions;
it applies equally to trial court decisions. In effect,
Heritage confirms that Sattva
has made a significant change to how appellate courts will treat
contract cases. It is now more difficult than ever to overturn a
contractual interpretation decision on appeal.
The decision also discusses at length the rules of statutory
interpretation, emphasizing in particular that where a legislature
(or parliament) expressly creates a statutory exception to a common
law principle, that exception should be narrowly construed, as the
legislature is assumed not to have intended to change the common
law unless it has done so clearly and unambiguously.
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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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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