Canada: Rolling Back Sattva: Appeal Courts Can Second Guess Contractual Interpretation

Last Updated: September 27 2016
Article by Melanie J. Harmer

A window washer’s ill-advised cleaning of the windows of a recently constructed tower not only necessitated the costly replacement of all of the tower’s windows, but opened the door for the Supreme Court of Canada to reframe its earlier jurisprudence on standard of review.

Background

The immediate dispute in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, concerned the interpretation of a standard form exclusion clause in an all-risk property insurance policy. At issue was whether a faulty workmanship exclusion in the insurance policy excluded coverage for the $2.5 million cost to replace all of the windows or only the $45,000 cost to clean the windows. Against this backdrop, the Court’s judgment focuses on how appellate courts should approach their review of a trial court’s interpretation of standard form contracts.

Standard Form Contracts

A standard form contract is a highly specialized contract sold widely to customers without negotiation of terms. They are generally offered on a “take it or leave it” basis and examples include a contract with a bank, a telephone company, or an insurance contract. Given how pervasive standard form contracts are in daily business transactions, many contractual disputes that end up before the courts involve these contracts.

Review By Appellate Courts

The law of standard of review creates a division of labour between trial and appellate courts. As the Supreme Court of Canada explains in Ledcor, the main function of trial courts is to resolve the particular disputes before them. On the other hand, appellate courts operate at a higher level of legal generality. They ensure that the same legal rules are applied in similar situations and their mandate is to ensure consistency of the law. In exercising these different functions, the term standard of review is used to describe the amount of deference that an appellate court will give to findings by the trial court.

The Sattva Decision Brings Clarity to Standard of Review

In 2014, the Supreme Court of Canada issued a significant decision, Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, regarding the standard of review to be applied by appellate courts when deciding matters of contractual interpretation. The Court in Sattva abandoned the historical approach of treating contractual interpretation as a question of law and directed that appellate courts should treat contractual interpretation as a matter of mixed fact and law. This limits intervention by appellate courts to only those cases where the trial judge has made a palpable and overriding error. A palpable error is one that is plainly seen. An overriding error is one that is in regards to a matter that was determinative in resolving an issue. This means that a successful appeal on a matter of contractual interpretation requires meeting the very high standard of showing that the trial judge made both a palpable and an overriding error. Even if the appeal court would have come to a different conclusion, that is not enough to overturn the decision of the lower court.

According to Sattva, an appellate court can only conduct a correctness review where there is an extricable question of law (for example, failure to consider a required element of a legal test). The Sattva decision was an important advance in the law because of its direction that appellate courts play a very limited role in reviewing matters of contractual interpretation.

Ledcor Introduces an Exception

The Sattva decision was said to bring clarity to the law on standard of review. However, just two years later the Supreme Court of Canada’s Ledcor decision, described above, has reintroduced uncertainty. The Ledcor decision carves out an exception to the holding in Sattva that contractual interpretation is a question of mixed fact and law subject to deferential review on appeal on the basis that standard form contracts raise unique issues. As the interpretation of a standard form contract is of precedential value and there is no meaningful factual matrix specific to the parties, the interpretation of a standard form contract should be characterized as a question of law subject to a correctness review.

After seemingly drawing this bright line for standard form contracts, the Court in Ledcor goes on to say that depending on the circumstances, the interpretation of a standard form contract may still be a question of mixed fact and law (as it would be under Sattva). Appellate judges are directed to consider whether the dispute is over a general proposition or a very particular set of circumstances that is not apt to be of much interest to judges and lawyers in the future.

Coming back to those damaged windows that gave rise to the underlying dispute in Ledcor, the Court concluded that the insurance policy was a standard form contract and the standard of review applicable to the trial judge’s interpretation of the policy was correctness. The Court sided with the insureds and found that the $2.5 million cost of replacing the damaged windows was covered by the insurance policy.

Implications of Ledcor

In carving out an exception for standard form contracts, and then carving out an exception to that exception, the Court has reopened the window to parties arguing about the standard of review that applies to their particular contractual interpretation dispute. Should the agreement be categorized as standard form or negotiated? Is it a negotiated agreement, but with a particular interpretation issue that is likely to have wider precedential value? Or is it a standard form contract with a particular factual matrix that is relevant to its interpretation?

In addition to reviving the debate over the appropriate standard of review, there is also the possibility that further exceptions will be created. While Sattva was intended to streamline the question of deference by appeal courts, Ledcor has opened the door to additional exceptions whenever a matter of interpretation can be said to have precedential value.

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2016

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Melanie J. Harmer
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions