A release from future claims is to be interpreted in accordance with the principles of contract law

The Supreme Court of Canada recently clarified the required approach taken towards the interpretation of releases from future claims in Corner Brook (City) v. Bailey.

The Court has previously relied upon the application of the Blackmore rule, which preferred for a factual analysis of the surrounding circumstances when the parties signed the release. Writing for a unanimous court, Justice Malcolm Rowe, expresses that this rule no longer adds value and has, in fact, been incorporated within the general principles of contract law. He argued that an objective approach ought to be applied towards the interpretation of a release with regard to the principles of contract law established in Sattva Capital Corp. v. Creston Moly Corp. Hence, the language used in the release is paramount to the analysis. While not necessary to itemize all types of claims contemplated, the court will read the contract as a whole “giving the words sense using their ordinary and grammatical meaning consistent with the surrounding circumstances known to the parties at the time.” The question then becomes whether the type of claim sought is one which the release intends to cover.

In this case, Mr. Temple, an employee of the City of Corner Brook, brought an action against the respondent, Bailey, after being struck by her husband’s vehicle. In turn, as part of a separate action, the respondent advanced a claim against the City, wherein she settled and agreed by way of release to absolve the City of any liability pertaining to the accident. Bailey subsequently brought a third-party claim for contribution or indemnity against the City for the initial action against her by Mr. Temple. The City, in an application for summary trial, argued that the action was barred pursuant to the release previously signed.

At first instance, interpreting the release in accordance with the Blackmore rule, the application judge dismissed the action. Looking to the words of the release as well as the intention of the parties, it was determined that the release included third party claims. In contrast, the Court of Appeal of Newfoundland and Labrador reinstated the third-party notice and opined that the application judge erred by “putting too much weight on the broad, general language of the release” rather than considering the matter contemplated by the parties upon signing.

The Supreme Court reinstated the order emitted by the application judge as the “claim at issue was one which the parties mutually had intended to cover in the release”. Importantly, the court takes a meaningful opportunity to clarify the principles pertaining to the interpretation of releases. In all, based on the notion that releases generally tend to restrict all liability for future claims and account for all unknown risks, they will be interpreted more narrowly than other contracts, especially with regard to the types of claims not specifically contemplated at the time of signing. In drafting a release, the particular subject matter along with the timeframe for the duration of the release are relevant elements to address. The court will look at the purpose of the contract and “what the parties mutually and objectively intended” at the time. As well, it is specifically noted that releases can cover unknown claims if sufficient language is utilized.

The Supreme Court also clarified the applicable standard for appellate review. Granting that a “contractual interpretation is a fact-specific exercise”, the standard is based on a question of mixed fact and law, unless it is based on an extricable question of law.

Interestingly, in obiter, the court hints that it remains a question if pre-contract negotiations are to be admissible when interpreting a release. It remains to be seen how the long-standing evidence rule against the admissions of pre-contract negotiations will be reconciled with the common law principles established in Sattva.

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The Supreme of Canada has upheld the British Columbia Court of Appeal’s decision in Owners, Strata Plan LMS 3905 v Crystal Square Parking Corp. In applying common principles of contract law, the Supreme Court of Canada has shed light on the implications of agreements imposing positive obligations on successors in title, and specifically whether positive obligations can run with the land.  Additionally, the Supreme Court of Canada also contemplated whether the parties, by their conduct post-incorporation demonstrated an intention to be bound by a contract identical to the one their predecessor entered into.

Crystal Square was a large complex in Burnaby, B.C., which held a mixture of both commercial and residential tenants including an officer tower. When Crystal Square was built, its developer signed an Air Space Parcel Agreement with the City of Burnaby. One thing the agreement set out was access to the parking for each air space parcel and the cost associated with same.

The office tower was a strata tower, made up of several units or “strata lots”. Though owned by different people, it has shared ideas. The strata corporation manages and maintains the shared areas and services. The strata corporation did not exist when the Air Space Parcel Agreement was signed. However, its members used the parking garage and paid for it, as directed by the Agreement.

Eventually, the owners wanted to dispute the cost of parking. As they had not signed the Agreement, they disputed whether its terms applied to them. As such, the central question before the Courts was whether the parties, after Strata’s incorporation, entered into a new contract on the same terms as the pre-incorporation contract?

In order to answer this question, the Appellate Court used the test from Heinhuis v Blacksheep Charters Ltd. and Phelps Holding Ltd. v Owners Strata Plan VIS 3420:

• the parties need to show an intention to be bound by a new, and identical post-incorporation contract; and
• that the parties cannot take the benefit of the agreement without accepting the burden that comes with; and lastly
• when the benefit and burden are contemplated pre-incorporation, and then acted upon exactly as contemplated post-incorporation, then there will be a new post-incorporation contract on the same terms.

Ultimately, the Supreme Court of Canada, in agreement with the BC Appeals Court, held that the Agreement between the parties could be enforced. The strata corporation took advantage of all the terms of the Agreement, for many years, after incorporation, it therefore should be obliged to discharge the burden of the Agreement as well. Consequently, the benefit and burden were acted upon by the the strata corporation in the exact manner contemplated post-incorporation.

Interestingly, this case opens the door for the general applicability of Heinhuis in all cases where there is a newly incorporated entity with an intention to be bound by a new, post-corporation contract. Further, it addresses the apprehension of applying Heinhuis because it would bind a party to a positive obligation that does not run with the land.

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You Snooze You Lose: Court Declines to Stay Proceeding Despite Existence of Arbitration Clause

In the recent decision Paulpillai v. Yusuf, 2020 ONSC, the Superior Court of Justice refused to stay litigation in favour of arbitration, because the Respondent delayed in seeking the stay.

In this case, the Applicant and Respondent signed a partnership agreement which contained an arrangement to arbitrate any disputes. The Applicant passed away, and contentions arose between the Respondent and the Applicant’s estate. The parties attempted to divide the partnership enterprise, and the Applicant’s estate commenced a court application. For the next seven months, the parties made court appearances for several interlocutory motions. At the hearing itself, the Respondent wished to rely on the arbitration agreement to seek a stay of proceedings. The court declined to grant this stay.

The court held that it had jurisdiction to hear the application because the Respondent took steps in moving matters forward, and neglected to bring a motion to stay the application in advance of the hearing. The court relied on the provision of the Arbitration Act, 1991, which allows courts to stay a proceeding if an arbitration agreement exists, but on motion of the other party. The exception to this rule is that such motion must be brought without undue delay.

In this case, though the Respondent indicated in his affidavit evidence that this matter should proceed by way of an arbitration, he failed to bring a motion, or do so in a timely manner. Once the Respondent took steps in advancing the proceeding, he abandoned his right to have the matter be determined by an arbitration.

This decision serves as a cautionary tale for parties wising to continue by way of arbitration when a proceeding has already commenced. In such cases, counsel should bring a motion to stay the matter immediately at the commencement of the proceeding. A party is deemed to acquiesce to the proceeding if they take actions to move the litigation along. This can result in the party forfeiting their right to have the action or application stayed at a later time.

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Failed to Obtain a Wrap-Up Policy? The Court May Read One In.

By Samah Rahman

A wrap-up insurance policy is an owner or contractor’s insulation against liability in case the project goes south. These policies protect the team involved on a construction project against third-party and general liability exposure. Many contractors will stipulate that this insurance be obtained before undertaking a project. This was the case in Ashcroft Homes Inc. v. Aviva Insurance Co. of Canada^[1] where Dufresne Piling Company (“Dufresne”), a subcontractor, bid on the Richmond Towers construction project with a stipulation that a wrap-up insurance policy be obtained for the project. Ashcroft Construction (“Ashcroft”), the general contractor, accepted the bid and represented that this coverage would be secured. In fact, Ashcroft never did obtain this policy despite its contractual obligation to do so.

Sometime during the course of the project, the owner of the Richmond property brought an action against Dufresne for damages in negligence while performing land clearing services. Dufresne expected to rely on the wrap-up policy to cover the cost of its defence. When Dufresne discovered that Ashcroft failed to secure the policy, it brought a third-party claim seeking an order that Ashcroft be liable for Dufresne’s defence costs.

First, the court found that there was no genuine issue requiring trial because Ashcroft breached the term of its contract which called for a wrap-up insurance policy. Next, the court considered whether the owner’s claims fell within the coverage under a wrap-up policy. Of course, no policy existed to make this determination, so the court read one in.

Using expert reports, the court conceptualized what a typical wrap-insurance policy would cover, and concluded that the claims brought by the owner, would fall within the ambit of a policy, if such a policy existed. The court reasoned that even if “some” but not all claims were covered by a policy, the insurer would be required to pay all reasonable costs associated with the defence. In this case, the court was satisfied that at least some of the allegations in the statement of claim triggered a duty to defend. The mere possibility that a claim may fall within the wrap-up policy that should have been obtained, was also sufficient to trigger the duty. The court ordered that Ashcroft reimburse Dufresne for legal costs incurred in defending the proceeding.

Evidently, getting too wrapped up to secure a wrap-up policy when a party ought to have, will not absolve a party from liability; the law will hold the party accountable as if the policy existed.

[[1]] 2019 ONSC 4634

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