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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On July 29, 2021, the Supreme Court of Canada clarified the common law discoverability rule and the applicable standard to determine when a plaintiff has the requisite knowledge to discover a claim. The Court of Appeal of New Brunswick had previously left the state of the law rather unstable when broadening the limitation period for a negligence action. This previous decision had significantly increased the length of time permitted for a plaintiff to discover a negligence claim by extending the discoverability of a claim as far as requiring the delivery of an expert report indicating negligence. The court strongly disagreed with the standard instilled by the Court of Appeal and reinstated the decision emitted at first instance by the motion judge that the claim was statute-barred. The Supreme Court expressed that “a plausible inference of liability was sufficient” to meet the standard. Importantly, it also noted that the common law discoverability rule can be expressly ousted from the legislation. In this case, it was not excluded and in fact, clearly embedded within the legislative framework and was to serve as an interpretative tool.

New-Brunswick company, Atcon Group, upon applying for loans, required guarantees from the Province of New Brunswick. The Province agreed to the issuance of guarantees solely based on the condition that the company’s assets be reviewed by an independent auditing firm, Grant Thornton LLP. Grant Thornton confirmed that the company’s books were representative of their current financial circumstances and the Province thereafter issued $50 million in loan guarantees. Shortly after, Atcon Group ran out of working capital and defaulted on the loans issued by the Bank of Nova Scotia. The Province subsequently retained an additional auditing firm, RSM Ritcher Inc., to assess Atcon Group’s financial position. This latter report indicated that the assessment completed by Grant Thornton LLP was erroneous and the financial statements as prepared by the Atcon Group overstated their assets and was inconsistent with the Generally Accepted Principles of Accounting. The Province of New Brunswick, a year and a half later, commenced an action against Grant Thornton LLP alleging negligence. Denying the allegations, Grant Thornton LLP moved for summary judgement claiming that the action exceeded the limitation period as permitted under s.5(1)(a) of the Limitation of Actions Act. The trial judge had determined that the action was not commenced within the permitted 2-year timeframe and that the Province ought to have known that they had a potential cause of action prior to the deliverance of the subsequent report. The decision was appealed by the Province of New Brunswick and surprisingly, the Court of Appeal widely expanded the standard by articulating that the two-year limitation was to start when the plaintiff discovered, they, in fact, had a claim rather than the plausibility of one. In the case of a negligence claim, the Court of Appeal took a surprising direction, inconsistent with the previous application of the discoverability rule. It had established that the limitation period would start when the plaintiff would have knowledge or ought to know that the “defendant was under a relevant duty of care and its loss-causing act or omission fell below the applicable standard of care”.

The Supreme Court opined that the NBCA erred in their analysis and raised the discoverability rule to a far too high standard approaching certainty and potentially resulting in the “indefinite postponement of the limitation period”. Justice Moldaver illustrates that a claim is discovered when the plaintiff “has knowledge, actual or constructive, of the material facts upon which a plausible inference of liability on the defendant’s part can be drawn”. In his words, “in order to properly set the standard, two distinct inquiries are required”. Firstly, it must be determined whether “the state of the plaintiff’s knowledge is to be assessed in the same manner as the common law rule of discoverability”. In other words, is the common law rule excluded from the legislative framework? If not ousted, the “rule is triggered when the plaintiff discovers or ought to have discovered the material facts upon which the claim is based”. The latter part of the analysis moves on to considering the degree of knowledge required to lead to the discovery of the claim. The plaintiff should know or should reasonably expect that the claim exists. The Supreme Court notes that the requisite standard is “not certainty of liability or perfect knowledge” as the Court of Appeal had proposed, rather, the “plausible inference of liability is sufficient”.

In all, the recognition that the standard for discoverability was set too high was rather welcomed by defence counsel. Unless expressly incorporated within the legislative framework, an expert report which specifically indicates the occurrence of negligence is not required to trigger the clock for the limitation period for a negligence action.

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