The Supreme Court of Canada's unanimous decision
of Sattva v. Capital Corp. v. Creston Moly
Corp., 2014 SCC 53 opened the barn door and let
loose a wild horse in terms of the scope and the availability of
the use of the surrounding circumstances in contract
interpretation. According to Sattva, contractual
interpretation was no longer a question of law, but one of mixed
fact and law, dependent upon the specific circumstances existing at
the time of contract creation. The Court defined the surrounding
circumstances very broadly as being "absolutely
anything which would have affected the way in which the
language of the document would have been understood by a reasonable
The newly rendered Ledcor Construction Ltd. v.
Northbridge Indemnity Insurance Co., 2016 SCC 37 decision appears to be
attempt to tame that wild horse—at least where standard form
contracts are in play. Prior to Ledcor, appellate and
trial courts struggled with the question of how standard form
contracts- with their typical lack of any meaningful surrounding
circumstances- ought to be interpreted, and whether a correctness
standard of review was more appropriate.
Ledcor has resolved this struggle and provides
further guidance as to how standard form contracts should be
interpreted, and what standard of appellate review applies. This
decision will be of particular importance to those parties who make
use of standard for contracts on a daily basis, such as in the
insurance, banking, and construction industries.
Ledcor dealt with the interpretation and
appellate review of a standard form builders' risk insurance
policy. A subcontractor window cleaner on a high rise construction
project scratched the high rise's windows during cleaning. A
dispute arose as to whether the replacement cost of the windows was
excluded by the faulty workmanship exclusion, or captured by the
resulting damage exception in a standard form builders' risk
Wagner J., writing for the majority of the Court
in Ledcor, held that the interpretation of standard
form contracts should be recognized as an exception
to Sattva, meaning that a standard of review of
correctness ought to apply. Two main reasons were put forward for
this exception. First, the majority observed that the
surrounding circumstances for standard form contracts will often
carry less weight, given the lack of negotiation, and will usually
be the same for everyone who may be a party to the typical standard
form. Second, given that any given court's interpretation of a
standard form contract may be applied to similarly worded
agreements, the majority held that the interpretation also has
precedential value. As such, the Court held that a correctness
standard was more appropriate for the interpretation of standard
That said, the majority did recognize that "depending on
the circumstances" the interpretation of a standard form
contract might be a question of mixed fact and law. If, for
example, the standard form agreement was negotiated or modified, or
if a factual matrix exists that is "specific for the
particular parties" so as to assist in the interpretation,
then the interpretation will not be on a correctness standard. The
majority explained that this line between a correctness and mixed
fact and law standard "is not always easily drawn," and
will depend on whether any given dispute involves a general
proposition, or a very particular set of circumstances that will
not be of much precedential value in the future.
In sum, Ledcor has added a measure of clarity
to the law of contractual interpretation. The interpretation of
standard form contracts, such as the typical contract of insurance,
will in most cases be a question of law, to be reviewed on a
standard of correctness. For those types of contracts, the
surrounding circumstances that do exist will carry less weight. The
surrounding circumstances which do exist, such as the purpose of
the contract, the nature of the relationship it creates, and the
market or industry the contract operates within, will still be a
factor of interpretation, but will usually be the same for everyone
who may be a party to that typical standard form. As
such, Ledcor provides important guidance to
parties and courts as to how to interpret standard form agreements,
and how interpretation of those agreements should be reviewed by
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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