Five Key Appellate Decisions Of 2021

• Published date: 13 January 2022
• Subject Matter: Litigation, Mediation & Arbitration, Arbitration & Dispute Resolution, Trials & Appeals & Compensation
• Law Firm: Aird & Berlis LLP
• Author: Mr Steve J. Tenai and Simon Dugas

As we did last year, we have highlighted five appellate decisions from 2021 that we believe will have a lasting impact on commercial disputes.

Good Faith in Exercising Contractual Discretion

At the outset of 2021, the Supreme Court of Canada further developed the law on the duty of good faith, and outlined when the exercise of contractual discretion can cross the line and give rise to a claim for breach of good faith.

In Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7, the Supreme Court of Canada recognized that the duty to exercise contractual discretion in good faith is well-established in the common law. However, the Court clarified that this duty requires parties to exercise their discretion in a manner that is consistent with the purpose for which the parties granted such discretion in the first place.

The Court cautioned that, in determining whether there has been a breach of good faith, the question is not whether the discretion was exercised in a commercially reasonable manner, but rather if it was exercised in a manner unconnected to the purpose underlying the discretion.

Accordingly, what is reasonable is determined by interpreting the contract as a whole and assessing the parties' intentions in conferring discretion in their contractual arrangement. Courts will intervene only where discretion is exercised in ways unconnected to the purposes for which the parties agreed to confer that discretion.

Releases

In March, the Supreme Court of Canada addressed the proper approach to interpreting the scope of a release.

In Corner Brook (City) v. Bailey, 2021 SCC 29, the Court rejected that different interpretative rules should apply to releases, holding that the general principles of contractual interpretation apply equally to releases. The scope of a release will depend on the wording and the surrounding circumstances giving rise to the release. Any judicial tendency to interpret releases narrowly is not a function of any special rule, but rather a function of releases themselves.

Specifically, the Court held that courts should no longer refer to the century old rule that the general words in a release are limited always to those things which were specifically in the contemplation of the parties at the time the release. Instead, courts are to read a 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 the formation of the contract.

The Court specifically rejected, as a rule of interpretation, that explicit language is always required for a release to be held to surrender rights and claims that the releasing party was unaware of. While the Court observed that it was a sensible approach for parties to consider wording that makes it clear whether the release will cover unknown...