Canada: Alberta Court Of Appeal Releases Landmark Decision On Contractual Interpretation

On May 26, 2017, the Alberta Court of Appeal (Court) released a landmark decision in IFP Technologies (Canada) Inc. v. EnCana Midstream and Marketing, which will impact principles of contractual interpretation in Alberta.

In addition to the legal principles discussed below, the Court recognized that business "craves certainty", is "understandably risk adverse" and so ensuring the proper interpretation of contractual obligations is essential to the economic well-being of the country, especially in Alberta's oil and gas sector where investments are often measured in millions, if not billions, of dollars.

BACKGROUND

The appellant, IFP Technologies (Canada) Inc. (IFP) is a French-owned research and development company. The respondents included a number of Canadian oil and gas parties including PanCanadian Resources (PCR), among others. IFP claimed that a contract formed with PCR conveyed to it an undivided 20 per cent working interest in oil and gas leases for a property in Alberta, known as Eyehill Creek. PCR insisted that IFP's interest in Eyehill Creek was limited to an undivided 20 per cent interest only in oil and gas produced through certain recovery methods.

The matter was initially heard over the course of a six-week trial. The Queen's Bench trial judge who oversaw the trial proceedings died before a decision was rendered. The parties agreed not to hold a new trial, but rather elected to have the chief justice (Trial Judge) of the Court of Queen's Bench decide the matter based on the written trial record. The Trial Judge ruled in favour of the respondents on the basis that, among other things, the term "working interest" was not defined in IFP's contract with PCR and that "working interests" was referenced only in relation to certain thermal and enhanced recovery methods.

IFP appealed on the claimed basis that the Trial Judge made a number of errors of law. Critically, IFP maintained that the term "working interest" was a legal term of art, which had a specific meaning in the context of the Canadian oil and gas industry. The Court of Appeal noted that the Trial Judge's decision predated two groundbreaking decisions of the Supreme Court on contractual interpretation: Sattva Capital Corp. v. Creston Moly Corp. and Bhasin v. Hrynew.

DECISION

In her majority reasons for judgment reserved (there was a dissenting judgment), Chief Justice C. Fraser allowed the appeal and reversed the decision of the Trial Judge. In doing so, she clarified and developed the law in Alberta with respect to the principles of contractual interpretation.

The Chief Justice began her decision with a forceful defence of a commercially reasonable approach to contract interpretation, which recognizes the presumption that contracts are entered into in good faith.

The Chief Justice held that a practical, common-sense approach was required where a court is called upon to determine what the parties to a contract intended. She held that must not be an exercise in second guessing what could have been included in the contract, but rather in determining the objective intention of the parties in a manner that accords with sound commercial principles and good business sense.

The Chief Justice made a number of important statements with respect to the principles of contractual interpretation and the standard of review thereof, as paraphrased below:

  • Factual Matrix: A trial judge must consider the surrounding circumstances or "factual matrix" of a contract, regardless of whether the contract is ambiguous. It is an error of law for a trial judge to discount or disregard evidence of the factual matrix on the basis that a contract is not ambiguous. The Court will review such an error on the correctness standard.
  • Parol Evidence Rule: It does not offend the parol evidence rule for a trial judge to consider the factual matrix where there is no ambiguity in a contract. That rule precludes evidence that would "subtract from, vary, or contradict" the written words of a contract. Evidence of the factual matrix, conversely, is an objective interpretive aid to assist in ascertaining the meaning of the written words of a contract. A trial judge must consider the factual matrix to ensure that he or she has a proper understanding of the parties' mutual and objective intentions as expressed in the words of the contract. This includes evidence of the negotiation of the contract and antecedent agreements.
  • Terms of Art: A legal term of art that has a common meaning to participants in a given industry need not necessarily be defined in a contract. If the term has an accepted meaning and usage in a sector, its interpretation by the court has precedential value and it must be interpreted consistently. In that respect, a term of art is analogous to a standard form contract. For a trial judge to misinterpret a term of art is an error of law, which the Court will review on the correctness standard. Likewise, it is an error of law reviewable for correctness for a trial judge to disregard a legal term of art or to fail to recognize that a legal term of art has a certain meaning.

The Chief Justice signalled that the Court will take a more interventionist role in ensuring that the Alberta courts interpret contracts in a practical, common sense and consistent manner.

CONCLUSION

Whether one agrees with the result or not (there was a strong dissenting decision), the Chief Justice's decision appears to be a call for a more commercially reasonable approach to contract interpretation and may be a harbinger of a trend which will be adopted in other jurisdictions based on the Supreme Court of Canada case in Sattva. In clarifying the above principles, the Chief Justice seems to be reversing the trend in recent years wherein complex contractual disputes are often resolved through arbitration. The Chief Justice posited that perhaps companies have or will be motivated to pursue arbitration if court decisions on contractual interpretation are disconnected from economic reality.

The decision provides clarity for litigants seeking to enforce their contractual rights and may be persuasive in other jurisdictions. It also provides more robust rights of appeal to ensure that litigants have recourse where trial courts make erroneous findings or evidentiary rulings when called upon to interpret contracts.

We acknowledge the able assistance of Summer Law Student, Callin Haglund, in preparing this bulletin.

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.

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
Events from this Firm
12 Sep 2017, Seminar, Toronto, Canada

Please join us as we take an in-depth look at the legislation and the impact on the industry.

14 Sep 2017, Seminar, Toronto, Canada

Change, stress and uncertainty are ever]present factors in todayfs legal environment, and specific aspects about the practice of law make it difficult to thrive in the profession long term. Luckily, there are specific research]based strategies that have been shown to help lawyers thrive and lead to more effective ways to manage stress and pressure.

5 Oct 2017, Seminar, Toronto, Canada

Blakes is proud to host our New to In-House Series, designed to bring together junior and mid-level in-house counsel for a candid exchange of insights to highlight and address some of the challenges and opportunities facing in-house lawyers in their roles today.

 
In association with
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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.