By Bryan Gilmartin and Natalie Kodsi
In the recent Supreme Court of Canada case of Corner Brook (City) v Bailey,[1] the highest Court provided insight into the law surrounding the drafting, interpretation, and scope of releases.
While driving a car owned by her husband, the respondent, Mrs. Bailey, struck an employee of the City of Corner Brook who was performing road work. The employee sued Mrs. Bailey. In a separate action, Mrs. Bailey sued the City. Mrs. Bailey and the City subsequently settled and, in doing so, Mrs. Bailey signed a release, discharging the City from any further liability relating to the accident. Years later, in her defence against the employee, Mrs. Bailey brought a third-party claim against the City for contribution or indemnity. However, the City disagreed saying the release barred Mrs. Bailey from doing so. The Supreme Court was tasked with contemplating the law surrounding the interpretation of releases.
In retiring the “Blackmore Rule” which arose out the House of Lords decision of London and South Western Railway Co v Blackmore[2], the Court affirmed that releases should be interpreted in accordance with the regular rules of contractual interpretation as described in Creston Moly Corp v Sattva Capital Corp.[3]
The Law Governing the Interpretation of Releases
Years prior, in Sattva, the Supreme Court marked a significant change in the rules for the interpretation of contracts. Prior to Sattva, traditionally, the interpretation of contracts was a matter of law, not mixed fact and law, such that the words of a contract were given their “black letter” meaning with generally no consideration to circumstances surrounding the creation of a contract.
Sattva directed courts to break away from this thinking and look to the surrounding circumstances known to the parties (or which ought to have been known) at the time of the contract in interpreting the meaning of the words of a contract. The courts were instructed to “read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances[4] known to the parties at the time of formation of the contract.”[5] This Court in Sattva further explained that “[t]he meaning of words is often derived from a number of contextual factors, including the purpose of the agreement and the nature of the relationship created by the agreement”, but that the surrounding circumstances “must never be allowed to overwhelm the words of that agreement”.[6] While the surrounding circumstances are relied on in the interpretative process, they cannot be used to deviate from the text such that it effectively creates a new agreement.[7]
In Estates Litigation, releases are common practice. Notably, releases are contracts. As such, they are to be interpreted using the general principles of contract as outlined above and in Sattva, meaning that the courts are obligated to give the words of the releases their ordinary and grammatical meaning, in a way that is consistent with the surrounding circumstances known to the parties at the time of the contract formation.[8]
Sometimes the ordinary meaning of the words and the surrounding circumstances come into tension, and courts must decide whether to rely on the surrounding circumstances to refine the meaning of the words, or whether doing so would impermissibly overwhelm the words of the agreements, in which case the words must override.[9] The Supreme Court in Corner Brook explains this tension may more often arise when interpreting releases for two reasons:
- Releases are often broadly worded – a general release, if interpreted literally, could prevent the releasor from suing the releasee for any reason, forever. While such releases may not be enforceable for other reasons (g., unconscionability), the circumstances may also often indicate that such extreme consequences are not what the parties objectively intended.
- Releases are often all-encompassing in scope such that it contemplates risks that at the time of the contract are unknown – this is an imprecise task that often gives rise to disagreement as to what was intended.
For these reasons, releases may more often lead to dissonance between the words of an agreement on their face and what the parties seem to have objectively intended based on the surrounding circumstances. The Court explained that, in resolving this tension, courts can be persuaded to interpret releases narrowly more so than other types of contracts.[10] The broader the wording of the release, the more likely this is to be so, but there is no obligation mandating this narrow interpretation.
Key Takeaways – What Are Some Good Release Drafting Practices?
The Court in Corner Brook goes on to explain how releases can be drafted to avoid the two above-noted issues of overbreadth. Ultimately, a release should be drafted in such a way that the parties can be said to have reasonably intended the release to apply only to claims, known or unknown, relating to a particular subject matter.[11] The context surrounding the release can serve as a limiting factor to the breadth of the wording[12], however, there are other good release drafting practices which can assist. To that end, the drafter ought to:
- Narrow releases to a particular subject matter and/or time frame: while a release can include both known and unknown claims, they should be those which the parties can be said to have reasonably intended the release to apply to as it relates to a particular subject matter. For instance, a mutual general release on a settlement of final partnership accounts ought to be confined to claims arising out of the partnership, and not be taken to preclude a claim that later came to light regarding something outside of the partnership, e., the roots from one partner’s property damaging the foundation of the neighbouring partner’s house.[13] In drafting narrowly, the drafter may want to include a relevant period of time that the release is intended to cover if appropriate;
- Explicitly contemplate unknown, future claims: by using words such as “including known and unknown claims” and/or “without limiting the generality of the foregoing” which are appropriately encompassing of the subject matter;[14]
- Draft with plain language: there is no need to create lengthy “catalogue” releases which describe all possible known and unknown claims, for instance: “any and all claims arising from xyz and without limiting the generality of the foregoing any and all claims, counterclaims or defences that can be pleaded in the fee dispute including tort claims, negligence claims, breach of contract claims, cost claims, etc.” Rather, language such as “any and all claims” will suffice to include all claims, except those of which are explicitly excluded in the release.[15] Lengthy lists run the risk of unnecessary limiting the coverage of the release if they are not appropriately drafted or caveated to be non-exhaustive.
In Corner Brook, because the parties narrowed the subject matter of the release to claims arising out of a particular event (the accident), there was no tension between the words and the surrounding circumstances. The release between Mrs. Bailey and the City encompassed claims Mrs. Bailey pursued against the employee. The release was circumscribed and nothing in the surrounding circumstances indicated that the words of the release should be interpreted to depart from what on a plain reading they would mean.
—
[1] 2021 SCC 29 (“Corner Brook”).
[2] 1870 LR 4 HL 610: “The general words in a release are limited always to that thing or those things which were specifically in the contemplation of the parties at the time when the release was given”.
[3] 2014 SCC 53 (“Sattva”).
[4] Relevant surrounding circumstances “consist only of objective evidence of the background facts at the time of the execution of the contract…, that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting”: Corner Brook at para 20, Sattva at para. 58.
[5] Sattva, at para 47.
[6] Sattva, at paras 48 and 57.
[7] Sattva, at para 57.
[8] Corner Brook, at para 21, Sattva, at paras 47-8.
[9] Sattva, at para 57.
[10] Corner Brook, at para 38.
[11] Corner Brook, at para 40.
[12] Corner Brook, at para 36.
[13] Corner Brook, at para 40.
[14] Corner Brook, at para 42.
[15] Corner Brook, at para 42.
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Written by: Bryan Gilmartin
Posted on: December 20, 2021
Categories: Commentary, WEL Newsletter
By Bryan Gilmartin and Natalie Kodsi
In the recent Supreme Court of Canada case of Corner Brook (City) v Bailey,[1] the highest Court provided insight into the law surrounding the drafting, interpretation, and scope of releases.
While driving a car owned by her husband, the respondent, Mrs. Bailey, struck an employee of the City of Corner Brook who was performing road work. The employee sued Mrs. Bailey. In a separate action, Mrs. Bailey sued the City. Mrs. Bailey and the City subsequently settled and, in doing so, Mrs. Bailey signed a release, discharging the City from any further liability relating to the accident. Years later, in her defence against the employee, Mrs. Bailey brought a third-party claim against the City for contribution or indemnity. However, the City disagreed saying the release barred Mrs. Bailey from doing so. The Supreme Court was tasked with contemplating the law surrounding the interpretation of releases.
In retiring the “Blackmore Rule” which arose out the House of Lords decision of London and South Western Railway Co v Blackmore[2], the Court affirmed that releases should be interpreted in accordance with the regular rules of contractual interpretation as described in Creston Moly Corp v Sattva Capital Corp.[3]
The Law Governing the Interpretation of Releases
Years prior, in Sattva, the Supreme Court marked a significant change in the rules for the interpretation of contracts. Prior to Sattva, traditionally, the interpretation of contracts was a matter of law, not mixed fact and law, such that the words of a contract were given their “black letter” meaning with generally no consideration to circumstances surrounding the creation of a contract.
Sattva directed courts to break away from this thinking and look to the surrounding circumstances known to the parties (or which ought to have been known) at the time of the contract in interpreting the meaning of the words of a contract. The courts were instructed to “read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances[4] known to the parties at the time of formation of the contract.”[5] This Court in Sattva further explained that “[t]he meaning of words is often derived from a number of contextual factors, including the purpose of the agreement and the nature of the relationship created by the agreement”, but that the surrounding circumstances “must never be allowed to overwhelm the words of that agreement”.[6] While the surrounding circumstances are relied on in the interpretative process, they cannot be used to deviate from the text such that it effectively creates a new agreement.[7]
In Estates Litigation, releases are common practice. Notably, releases are contracts. As such, they are to be interpreted using the general principles of contract as outlined above and in Sattva, meaning that the courts are obligated to give the words of the releases their ordinary and grammatical meaning, in a way that is consistent with the surrounding circumstances known to the parties at the time of the contract formation.[8]
Sometimes the ordinary meaning of the words and the surrounding circumstances come into tension, and courts must decide whether to rely on the surrounding circumstances to refine the meaning of the words, or whether doing so would impermissibly overwhelm the words of the agreements, in which case the words must override.[9] The Supreme Court in Corner Brook explains this tension may more often arise when interpreting releases for two reasons:
For these reasons, releases may more often lead to dissonance between the words of an agreement on their face and what the parties seem to have objectively intended based on the surrounding circumstances. The Court explained that, in resolving this tension, courts can be persuaded to interpret releases narrowly more so than other types of contracts.[10] The broader the wording of the release, the more likely this is to be so, but there is no obligation mandating this narrow interpretation.
Key Takeaways – What Are Some Good Release Drafting Practices?
The Court in Corner Brook goes on to explain how releases can be drafted to avoid the two above-noted issues of overbreadth. Ultimately, a release should be drafted in such a way that the parties can be said to have reasonably intended the release to apply only to claims, known or unknown, relating to a particular subject matter.[11] The context surrounding the release can serve as a limiting factor to the breadth of the wording[12], however, there are other good release drafting practices which can assist. To that end, the drafter ought to:
In Corner Brook, because the parties narrowed the subject matter of the release to claims arising out of a particular event (the accident), there was no tension between the words and the surrounding circumstances. The release between Mrs. Bailey and the City encompassed claims Mrs. Bailey pursued against the employee. The release was circumscribed and nothing in the surrounding circumstances indicated that the words of the release should be interpreted to depart from what on a plain reading they would mean.
—
[1] 2021 SCC 29 (“Corner Brook”).
[2] 1870 LR 4 HL 610: “The general words in a release are limited always to that thing or those things which were specifically in the contemplation of the parties at the time when the release was given”.
[3] 2014 SCC 53 (“Sattva”).
[4] Relevant surrounding circumstances “consist only of objective evidence of the background facts at the time of the execution of the contract…, that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting”: Corner Brook at para 20, Sattva at para. 58.
[5] Sattva, at para 47.
[6] Sattva, at paras 48 and 57.
[7] Sattva, at para 57.
[8] Corner Brook, at para 21, Sattva, at paras 47-8.
[9] Sattva, at para 57.
[10] Corner Brook, at para 38.
[11] Corner Brook, at para 40.
[12] Corner Brook, at para 36.
[13] Corner Brook, at para 40.
[14] Corner Brook, at para 42.
[15] Corner Brook, at para 42.
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