Back To Basics: A Refresher On The Fundamentals Of Contractual Interpretation

As the new school year kicks off, the Ontario Court of Appeal's recent decision in RBC Dominion Securities Inc. v. Crew Gold Corporation, 2017 ONCA 648 serves as a handy study guide for lawyers looking to brush up on Contracts 101.

Crew Gold Corporation ("Crew"), a public gold mining company, and RBC Dominion Securities Inc. ("RBC") entered into an agreement for the provision of investment banking services related to a sale of the company. Under the agreement, RBC was entitled to fees for work performed plus a success fee payable on completion of a "Transaction", which was defined broadly in the agreement.

While the agreement was in force, Crew was the subject of a takeover, which had not been anticipated by either party. RBC's offer to assist Crew with the takeover was refused, and Crew ultimately terminated the agreement. Although RBC was not involved in the takeover, it claimed to be entitled to the success fee because the takeover fell within the definition of "Transaction". Crew refused to pay the success fee, and RBC sued.

The trial judge found that RBC was not entitled to a success fee under the agreement because there was no causal link between its activities and the takeover. RBC appealed on the ground that the trial judge made extricable errors of law in interpreting the agreement by: (1) failing to consider the plain words of the agreement in the context of the contract as a whole; (2) relying on the parties' subjective intentions rather than the objective intentions expressed in the agreement; and (3) failing to consider the commercial reasonableness of RBC's interpretation of the agreement.

In support of its first argument, RBC asserted that its entitlement to the success fee did not require any causal link between the services provided and the takeover because the takeover was a type of transaction contemplated by the broad definition of "Transaction" in the agreement, and there was no express requirement that RBC participate in such Transaction to become entitled to the success fee. Further, the agreement distinguished between fees to be paid for services provided and the success fee, which was payable on the successful closing of a Transaction.

The Court of Appeal rejected RBC's interpretation of the agreement and its argument that the trial judge had not properly applied principles of contractual interpretation. The Court of Appeal stated that the specific words relied upon by RBC had to be considered in the context of the...