Canadian Appeals Monitor Information and Commentary on Upcoming and Recent Appeal Court Decisions

Insureds Score a Big Win at the SCC

Posted in Case Comments, Contracts, Insurance

Policyholders recently won a key victory at the Supreme Court of Canada in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co. as the Supreme Court clarified the interpretation of a standard form faulty workmanship exclusion clause common in builder’s risk policies.  The decision has wide-reaching significance to other insurance coverage disputes and to contract law generally.

The Supreme Court confirmed that only the cost to redo the faulty work is precluded from coverage by such an exclusion. Builder’s risk, or “course of construction” insurance policies seek to insure against certain defined risks which may occur during the construction process. Such … Continue Reading

The Ontario Court of Appeal Declines to Extend the Doctrine of Unconscionability into the Performance of Contracts

Posted in Case Comments, Civil Litigation, Contracts

In the 14 months since the Supreme Court of Canada rendered its landmark decision in Bhasin v. Hrynew, 2014 SCC 71 [1] the general organizing principle of good faith in contract law has been applied in a very restrained manner by courts across Canada. The recent decision of the Ontario Court of Appeal in Bank of Montreal v. Javed, 2016 ONCA 49 is a further example of this trend.… Continue Reading

A blockbuster decision in contractual interpretation

Posted in Case Comments, Contracts

In the world of contractual interpretation, the decision of the Supreme Court of Canada in Sattva Capital Corp. v. Creston Moly Corp. is a blockbuster. Sattva does three significant things. First, it determines that contractual interpretation generally involves a mixed question of fact and law, not a question of law alone. That holding has major implications for appellate review of decisions involving issues of contractual interpretation, and represents the resolution of an issue that had previously divided provincial appellate courts. Second, Sattva emphasizes the importance to contractual interpretation of evidence of the surrounding circumstances or the factual matrix in which … Continue Reading

The Burden of Proof to Rectify a Contract: The Ordinary Civil Standard Applies

Posted in Case Comments, Contracts

The issue

Rectification is an important equitable doctrine allowing courts to rewrite contracts that erroneously record the agreement reached by the parties.  The basic requirements for rectification are well settled.  Where there is a mutual mistake, the party seeking rectification must show (i) that the parties had a common continuing intention prior to the making of the document alleged to be deficient; (ii) that that intention remained unchanged or existed at the time when the document sought to be rectified was signed; and (iii) by mistake, the parties signed a document that did not accurately reflect their common intention.

However, … Continue Reading

Using contract law to fix tax (and other) mistakes: the Supreme Court of Canada recognizes a rectification-like remedy under Quebec law

Posted in Case Comments, Contracts, Tax
The problem and the fix

A taxpayer intends to undertake a transaction on a tax-efficient basis. But the transaction gets papered wrong, and the intended tax treatment is not achieved. Can the law of contract save the taxpayer by allowing a court to rewrite the contract documents retroactively in order to achieve the original intention of tax efficiency?

For over a decade the answer in common law Canada has been yes, through the equitable doctrine of rectification. The basic concept underlying rectification is that where a written agreement has incorrectly recorded the parties’ prior oral agreement, the court has the … Continue Reading

Towards a General Duty of Good Faith Performance of Contractual Obligations – Maybe

Posted in Case Comments

The duty of good faith in contract law: the cautious and inconsistent approach of Canadian courts

Courts in common law Canadian jurisdictions have been reluctant to recognize any general duty to perform contractual obligations in good faith. Such a duty is a central tenet of American law under the Uniform Commercial Code and is a central tenet of Québec civil law, which recognizes a duty of good faith throughout the contracting process. But common law courts in Canada, like their counterparts in England, have been loath to recognize any general duty. They have also been very inconsistent, finding a host … Continue Reading

The Interpretation of Contracts When the Unforeseen Happens

Posted in Case Comments, Contracts

Purposive and contextual interpretation that achieves the original meaning

Disputes over the meaning of contracts most often arise in one of three circumstances. The first is when an event has occurred that the contracting parties did not foresee or provide for at the time of contracting. The second is when there was (subjectively) no meeting of the minds on a particular point, with the result that the parties have ended up with diverging expectations of their contractual rights and obligations. The third is when there has been sloppy or faulty drafting, such that the contractual language is ambiguous or unclear. … Continue Reading

La notion de mitigation à la Cour suprême du Canada: le triomphe de la théorie sur la réalité commerciale

Posted in Case Comments, Contracts

Une décision troublante

Lorsque le droit des contrats ne parvient pas à s’accorder avec la réalité commerciale, c’est troublant. Lorsqu’un litige commercial fait fi du contexte économique sous-jacent, c’est troublant. Dans Southcott Estates Inc. c. Toronto Catholic District School Board, la Cour suprême du Canada a mis en application des modèles de droit des contrats et de droit des entreprises purement théoriques pour conclure que la victime d’une violation de contrat avait omis de mitiger ses dommages. La victime de la violation s’est donc vu refuser ses dommages, lesquels étaient évalués à 1,9 million de dollars au moment du … Continue Reading

A Doctrine of Mitigation in the Supreme Court of Canada: A Triumph of Theory Over Commercial Reality

Posted in Case Comments, Contracts

A troubling decision

It is troubling when contract law fails to accord with commercial reality. It is troubling when a commercial case ignores the underlying economic context. In Southcott Estates Inc. v. Toronto Catholic District School Board, the Supreme Court of Canada applied theoretically pure models of contract and corporate law to conclude that the victim of a breach of contract had failed to mitigate its damages. The victim of the breach was therefore denied its damages, which had been assessed at trial at $1.9 million. But in applying pure theory, Southcott ignored commercial reality and the underlying economic … Continue Reading

Interpretation of Interrelated Contracts in a Commercially Effective Manner: Clarification of Two Important Principles of Contractual Interpretation

Posted in Case Comments, Contracts

It is well established that when interpreting a contract the document must be read as a whole, without considering the disputed words or phrase in isolation from the rest of the contractual text. In recent years, the Ontario Court of Appeal has expanded this principle to the interpretation of interrelated contracts, such that if (as commonly happens) a transaction is given effect by a series of contracts, all of the contracts in the series must be considered in interpreting any one of them (the interrelated contracts principle).… Continue Reading

The ISDA Master Agreement and Implied Terms: Text Over Context in the English Court of Appeal

Posted in Bankruptcy and Debt, Case Comments, Contracts, Financial Services

Should a commercial contract be interpreted literally, or should a court adopt a non-literal interpretation if necessary to achieve a result that makes commercial sense given the context (the factual matrix) of the agreement? This issue is an enduring one in contractual interpretation, and was recently put to the test in Lomas & Ors v. JFB Firth Rixson Inc. & Ors, a decision of the English Court of Appeal arising from the failure of Lehman Brothers. At issue was whether to imply terms into the Master Agreement of the International Swaps and Derivatives Association Inc. (the “ISDA Master Agreement”),

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Business Common Sense and the Interpretation of Commercial Contracts

Posted in Case Comments, Contracts

What role does business common sense play in the interpretation of commercial contracts? This issue was recently addressed by the Supreme Court of the United Kingdom in Rainy Sky S.A. v. Kookmin Bank. The answer: “where a term of a contract is open to more than one interpretation, it is generally appropriate to adopt the interpretation which is most consistent with business common sense”. Since there is currently some uncertainty in Canada on the point, Rainy Sky is an important case to consider.

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