Admissibility Of Post-Contract Evidence In Canada

IN BRIEF

Can Canadian courts consider evidence of the parties' conduct after they enter into a commercial agreement as an aid to its interpretation? A recent case by the Ontario Court of Appeal says "yes," but only in cases of contractual ambiguity. It remains to be seen, however, whether the decision will inject a level of contractual uncertainty in the Canadian legal landscape. A court's primary goal in the interpretation of a commercial contract is to discern the parties' intentions. In Canada, courts use a range of tools to achieve this end. They look to the ordinary meaning of the words chosen by the parties in their agreement. They also consider which interpretation of the contract will give it business efficacy or which will make the most commercial sense.

A recent debate has emerged in Canadian contract law about whether and how courts should consider the parties' conduct in determining their contractual intentions. In a leading case, Sattva Capital Corp. v. Creston Moly Corp., [2014] SCC 53, per Rothstein J., the Supreme Court of Canada made it clear that when interpreting a commercial agreement, courts should consider evidence of what it calls the "factual matrix" to determine the contract's meaning.

The factual matrix "consists only of objective evidence of the background facts at the time of the execution of the contract—that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting" (emphasis added).

Evidence of the factual matrix may very well include evidence of the parties' negotiations and correspondence at the time they executed the agreement. In this way, Sattva aligns Canadian contract law with its American counterpart. See, for example, Droplets Inc. v. E*Trade Financial Corp., 939 F. Supp. 2d 336 (Apr. 4, 2013).

Sattva left one key issue unresolved, however: can a court consider evidence of the parties' conduct after they enter into a commercial agreement as an aid to its interpretation?

Canadian courts have now answered this question in the affirmative, with one significant qualifier. Evidence of the parties' post-contract conduct is admissible as an aid to contract interpretation, but only in cases of contractual ambiguity. In the absence of ambiguity, the evidence is inadmissible. Even where the court finds that evidence of the parties' "subsequent conduct" is admissible, it must then decide whether to accord the evidence any weight. Shewchuk v...

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