A Blockbuster Decision In Contractual Interpretation

In the world of contractual interpretation, the decision of the Supreme Court of Canada in Sattva Capital Corp. v. Creston Moly Corp. is a blockbuster. Sattva does three significant things. First, it determines that contractual interpretation generally involves a mixed question of fact and law, not a question of law alone. That holding has major implications for appellate review of decisions involving issues of contractual interpretation, and represents the resolution of an issue that had previously divided provincial appellate courts. Second, Sattva emphasizes the importance to contractual interpretation of evidence of the surrounding circumstances or the factual matrix in which a contract is formed. In doing so, Sattva implicitly overrules a 1998 Supreme Court of Canada precedent to the extent that it had downplayed the importance of the factual matrix. Third, Sattva reaffirms a number of principles of contractual interpretation which are well established in Canadian jurisprudence.

Contractual interpretation is a question of mixed fact and law

At issue in Sattva was whether the lower courts in British Columbia should have granted leave to appeal a commercial arbitration award. Under the B.C. Arbitration Act, leave to appeal from an arbitrator to the courts can only be granted on a "point of law". That requirement squarely raised the issue of whether the issue the arbitrator had decided, namely the proper interpretation of a contract, was a question of law or a question of mixed fact and law. Sattva's unequivocal answer is that the issue was a question of mixed fact and law, such that the B.C. courts had erred in granting leave to appeal the arbitral award.

In reasons for judgment for a unanimous Court, Justice Rothstein began by noting that historically contractual interpretation had long been considered a question of law, but that the origin of that rule was anachronistic. The rule was developed centuries ago in England, at a time when civil cases were commonly tried by jury but jurors were often illiterate. In those circumstances, it became necessary to categorize contractual interpretation as a question of law to be determined by the judge, for the simple reason that the judge was often the only decision-maker in the courtroom who could actually read the disputed contract.

Justice Rothstein then noted that, for two major reasons, a number of cases had reconsidered the historical rule. The first is the importance in contractual...