Le 23 juillet 2021, la Cour suprême du Canada a publié sa décision Corner Brook (Ville) c. Bailey (« Bailey »), précisant la manière dont les décharges de responsabilité devraient être interprétées.
Une traduction de ce billet sera disponible prochainement.
On July 23, 2021, the Supreme Court of Canada released its decision in Corner Brook (City) v. Bailey ("Bailey"), clarifying how releases should be interpreted.
Summary
- The Supreme Court ruled that a release is a contract and the general principles of contractual interpretation articulated in Sattva Capital Corp v. Creston Moly Corp. ("Sattva") apply.
- The rule set out in London and South Western Railway v. Blackmore (1870), L.R. 4 H.L. (the "Blackmore Rule") — which stated that the general words in a release are limited to those things which were specifically in the contemplation of the parties at the time the release was given — has outlived its usefulness and is subsumed entirely by the current approach to contractual interpretation set out in Sattva.
- Distinctions between claims based on facts known to both parties and claims based on facts not known to both parties may be relevant when interpreting a release and assessing whether the claim at issue is the kind of claim the parties mutually intended to release. In the words of the Supreme Court, the ultimate question is whether "the claim is of the type of claim to which the release is directed". This will depend on the wording and surrounding circumstances of the release in each case.
Background
This case arises from a motor vehicle accident in which Mrs. Bailey ("Mrs. B") struck an employee of the City of Corner Brook ("City Employee") with her husband's car. The City Employee sued Mrs. B for injuries sustained in the accident. In a separate action, Mrs. B and her husband ("the Baileys") sued the City of Corner Brook ("City") for property damage to the car and physical injury Mrs. B suffered in the accident.
The Baileys reached a settlement with the City and released the City from liability relating to the accident. Pursuant to the release, the Baileys "release[d] and forever discharge[d] the City... from all actions, suits, causes of action... foreseen or unforeseen... and claims of any kind or nature whatsoever arising out of or relating to the accident". Several years later, Mrs. B brought a third party claim against the City, claiming contribution or indemnity from the City in the action brought against her by the City Employee. The City brought a summary trial application before the Newfoundland and Labrador Supreme Court, alleging that the release barred the third party claim.
Rulings of the Lower Courts
At the Newfoundland and Labrador Supreme Court, the application judge concluded that the release barred the third party claim against the City and stayed the claim. Mrs. B appealed to the provincial Court of Appeal, which unanimously allowed her appeal and reinstated the third party claim. The Court of Appeal held that the application judge made three extricable errors of law and that the words, the context and the exchange of correspondence were consistent with the release being interpreted as a release of the Baileys' claim in their action against the City only.
The City appealed to the Supreme Court of Canada.
The Supreme Court of Canada's Decision
In a unanimous decision, the Supreme Court of Canada disagreed with the Court of Appeal and reinstated the decision of the application judge.
Approach to the interpretation of releases
Writing for the Court, Justice Rowe emphasized that Sattva directs courts to:
...read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract.
Justice Rowe held that a release is a contract, and the Blackmore Rule and the jurisprudence pursuant to it should no longer be referred to, as the function it had served has been subsumed entirely by the modern approach to contractual approach set out in Sattva.
Justice Rowe cautioned that while courts may be persuaded to interpret releases more narrowly than other types of contracts, this is not because there is any special rule of interpretation applying to releases, but because the broad wording of a release can conflict with the circumstances, especially for claims not in contemplation at the time of the release. The broader the wording of the release, the more likely this is to be. Therefore, a sensible approach to drafting releases noted Justice Rowe, would be to consider wording that makes it clear whether the release will cover unknown claims and whether the claims relate to a particular area or subject matter.
The Court recognized that distinctions between claims based on facts known to both parties and claims based on facts that were not known to both parties may be relevant to interpreting a release and assessing whether the claim at issue is the kind of claim the parties mutually intended to release. The Court emphasized that the ultimate question when interpretating a release is "whether the claim is of the type of claim to which the release is directed." This inquiry will depend on the wording and surrounding circumstances of the release in each case.
Standard of Review and Analysis
Sattva made it clear that contractual interpretation is a fact-specific exercise and should be treated as a mixed question of fact and law for the purpose of appellate review unless there is an "extricable question of law".
Justice Rowe held that the application judge in this case did not make any extricable errors of law warranting appellate intervention. Specifically, Justice Rowe held that:
- Mr. B's third party claim came within the plain meaning of the words of the release;
- The surrounding circumstances confirmed that the parties had objective knowledge of all the facts underlying Mrs. B's third party claim when they executed the release; and
- The parties specifically defined the release as applying to claims relating to the accident.
Even though the parties may not have explicitly turned their minds to the possibility of a third party claim, the Court held that "it was their objective, mutual intent to cover such a claim within the scope of the release." In support of this, Justice Rowe quoted the application judge, who had written:
[W]hat was in the contemplation of the parties was that Mrs. Bailey could no longer bring any claim or demand whatsoever against the City relating to the Accident.
According to the Court, this was a fact-specific application of the principles of contractual interpretation and was owed deference.
Significance of pre-contract negotiations
It is worth noting that both the application judge and the Court of Appeal considered the pre-contract negotiations leading up to the settlement and release but drew different conclusions from the negotiations. While neither party argued that there was anything wrong with this approach by the courts below, Justice Rowe stated that considering pre-contractual negotiations may be at odds with the longstanding rule that evidence of negotiations is inadmissible when interpreting a contract. He also noted that this rule "sits uneasily" next to the approach from Sattva, which directs courts to consider the surrounding circumstances in interpreting a contract.
Ultimately, Justice Rowe decided to leave for another day the question of whether, and when negotiations will be admissible in interpreting a release. As he stated, "that issue needs to await a case where it has been fully argued and is necessary in order to decide the appeal." In this case, the application judge did not consider the negotiations to be determinative in interpreting the release one way or another.
Implications
As most commercial settlements are contingent on releases, the Bailey decision provides welcome guidance on the proper approach to interpreting the scope of a release. Not only does it clarify that a release is a contract to which the general principles of contractual interpretation articulated in Sattva apply, but it also offers some practical takeaways for drafting releases. Specifically, to avoid running into disputes about the parties' true intentions, when drafting a release parties ought to consider wording that makes it clear:
- whether the release will cover unknown claims; and
- whether the claims must be related to a particular event or subject matter.
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.
