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Interpretation of Contract Disputes

contract interpretation

It is a fact that almost everyone has contract disputes at some point, and here are the leading principles of how the courts  interpret such disputes.

The principles of contractual interpretation were clearly articulated by the Court of Appeal in Athwal v. Black Top Cabs Ltd., 2012 BCCA 107 (B.C. C.A.):

[42] The contractual intent of parties to a written contract is objectively determined by construing the plain and ordinary meaning of the words of the contract in the context of the contract as a whole and the surrounding circumstances (or factual matrix) that existed at the time the contract was made, unless to do so would result in an absurdity. Where the language of a contract is not ambiguous (that is, when viewed objectively it raises only one reasonable interpretation), the words of the written contract are presumed to reflect the parties’ intention. An interpretation that renders one or more of the contract’s provisions ineffective will be rejected.
[43] Extrinsic evidence to explain the meaning of an unambiguous contractual provision is not admissible. Evidence of a party’s subjective intention in executing the contract, or of their understanding of the meaning of the words used in the contract, is not admissible to vary, modify, add to or contradict the express words of the written contract. This is particularly so where a contract contains an “entire agreement” clause. …
71      The Court of Appeal in Athwal referred at some length to its earlier decision in Water Street Pictures Ltd. v. Forefront Releasing Inc., 2006 BCCA 459 (B.C. C.A.) in describing how and when extrinsic evidence may be considered to aid the interpretation of an agreement which provided:
[23] Recourse to extrinsic evidence to aid in the interpretation of an agreement is the court’s last resort. It is only when the intentions of the parties cannot be objectively determined from the words they have chosen to employ, such that there is ambiguity, that the law permits consideration to be given to evidence of their conduct in making their agreement and in fulfilling their obligations. …
[24] Thus, the court looks first to the words of the agreement, read as a whole, aided, if necessary, by evidence of the circumstances or what is referred to as the factual matrix existing when the agreement was made. Such evidence is generally restricted to circumstances known to both parties that illuminate the meaning a reasonable person would give to the words employed…
[25] If, after undertaking the first step of the analysis, the text is ambiguous, extrinsic evidence becomes admissible for the purpose of resolving the ambiguity and determining what was actually agreed. But there must be a true ambiguity before recourse can be had to evidence of the way in which the parties conducted themselves. It is well recognized that a court is not to search for ambiguity. …
[27] Where an ambiguity exists, a court in this province (unlike an English court) may consider not only evidence of the parties’ conduct in making their agreement, such as the course of their negotiations, but also the conduct of the parties in performing their agreement. It is, however, clear that evidence of that kind must be approached with caution.


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