Supreme Court Of Canada Confirms That Releases Are Interpreted Just Like Any Other Contract

• Published date: 27 July 2021
• Subject Matter: Litigation, Mediation & Arbitration, Trials & Appeals & Compensation
• Law Firm: Affleck Greene McMurtry LLP
• Author: Mr Kenneth Dekker

In a decision released today, July 23, 2021, in Corner Brook (City) v. Bailey, a unanimous Supreme Court of Canada overturned a decision of the Court of Appeal for Newfoundland and Labrador and restored a stay of a third party claim brought against the City of Corner Brook. The stay was granted based on the wording of a release given in a previous, separate action arising from the same accident. In doing so, Canada's top court made it clear that releases are subject to the same rules of interpretation as any other contract and that, absent an extricable issue of law, appellate courts should rarely overturn a lower court's interpretation of a release (or any other contract).

The underlying litigation stemmed from a car accident in which the respondent Mary Bailey struck David Temple, an employee of the appellant City of Corner Brook, with her husband's car. Mr. Temple sued Mrs. Bailey. In a separate action, Mrs. Bailey sued the City. Mrs. Bailey and the City settled, and Mrs. Bailey released the City from liability relating to the accident and discontinued her action. Years later, Mrs. Bailey brought a third party claim against the City for contribution or indemnity in the action brought against her by Mr. Temple. The City claimed that the release barred Mrs. Bailey's third party claim. Corner Brook successfully obtained an Order staying the third party claim based on a broad interpretation of the release - in which the release was interpreted based on its wording and the surrounding facts as applying to all types of claims relating to the accident, including ones that had not yet been brought. In doing so, the Newfoundland Supreme Court judge applied a rule called the "Blackmore Rule" from an 1870 decision that dictates that a a release is to be interpreted in accordance with what was in the contemplation of the parties at the time the release was signed.

A unanimous Court of Appeal overturned the decision on the application, finding that the Blackmore Rule has been subsumed into the broader contractual interpretation principles dictated by the Supreme Court of Canada in Sattva Capital Corp. v. Creston Moly Corp.,2014 SCC 53 and determining that the lower court had erred in finding that the general wording of the release covered the third party claim brought in the Temple action when the circumstances surrounding the negotiation of the release suggested otherwise. The third party notice against the City of Corner Brook was reinstated.

In his Reasons for...