Negotiating The Factual Matrix ' Corner Brook (City) v. Bailey 2021 SCC 29

• Published date: 09 December 2021
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Corporate and Company Law, Contracts and Commercial Law, Trials & Appeals & Compensation
• Law Firm: MLT Aikins LLP
• Author: Mr Jason Mohrbutter

What evidence can courts consider when interpreting a contract?

Courts generally aren't allowed to consider pre-contractual negotiations when interpreting a contract - but that may need to be reconsidered, according to a decision from the Supreme Court of Canada (SCC).

The SCC clarified the framework for interpreting releases in Corner Brook (City) v. Bailey. Courts have commented on the implications of the decision in that respect many times.¹ However, the Supreme Court also identified another important issue - the proper role of pre-contract negotiations within the framework for contractual interpretation set out in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53. While not deciding the issue, the Court indicated that the general rule prohibiting the admissibility of evidence of negotiations for such purposes may need to be reconsidered.

The SCC did not discuss any of the current exceptions to that general rule or give any direct indication of how it might be relaxed or revised. The guidelines set out in Sattva and applied in Corner Brook provide some insight as to potential changes to the general rule. The extent to which evidence of negotiations might be admissible appears dependent on whether the evidence is objective and if it fits within the established factual matrix/surrounding circumstances framework.

The facts in Corner Brook provide context for the Court's obiter

Mrs. Bailey struck a City employee with her husband's car resulting in the City employee bringing an action against Mrs. Bailey. She and her husband separately sued the City for property damage and personal injuries. That action settled and they signed a release drafted by City solicitors. The release included "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..."

Years later, in the action the City employee commenced, Mrs. Bailey brought a third-party claim for contribution and indemnity against the City. The City moved to summarily dismiss on the basis that the release precluded the third-party claim. The application judge agreed and found that the broad wording of the release precluded the third-party claim against the City. Both levels of Court considered the negotiations between Mrs. Bailey and the City leading up to the settlement and release of her action. Both came to different conclusions concerning the impact of such negotiations. The trial judge found they were not determinative to the proper interpretation of the release.

Application of Sattva

Justice Rowe on behalf of the SCC concluded that the motions judge properly considered the surrounding circumstances of the release pursuant to the principles delineated in Sattva. The findings of fact made by the motions judge deserved deference. Those findings mostly related to what was common knowledge of the parties. The Court then accepted, against this factual backdrop, that the broadly worded nature of the...