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Principles of Contract Interpretation

 

Principles of Contractual Interpretation

 

  1. The goal is to ascertain the objective intentions of the parties
  2. A practical, common sense approach is required;
  3. The court is to look to the contract as a whole and give effect to all provisions (i.e., provisions should not be read as standing alone but in light of the contract as a whole);
  4. Words used must be given their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time;
  5. Contextual evidence must not be permitted to overwhelm the wording of the agreement);
  6. Contractual provisions should be interpreted in the context of the objective intention of the parties as evidenced by the contract as a whole;
  7. It should be presumed that the parties meant what they said in the contract; and
  8. The contract’s interpretation should accord with sound commercial principles and good business sense. It is important to consider the purpose and nature of the relationship established by the contract,

(Sattva Capital Corp. v. Creston Moly Corp. 2014 SCC 53).

 

Courts seek to discover what the parties intended, not what a court thinks reasonable.

In determining the intention of the parties, and where appropriate, the court has the ability to imply terms even if the parties did not put them in writing. A term cannot be implied simply on the ground of fairness. There has to be strong evidence to support the conclusion that the implication of a term is permissible in the circumstances: Fridman, G.H.L., The Law of Contract in Canada, 6th Ed. (Toronto: Thomson Reuters, 2011) at 463–64.

 

Ultimately, a term can be implied into a contract in one of three general scenarios:

  1. Where custom and usage necessitates the implication of the term;
  2. Where a term is necessary to give business efficacy to a contract by implying terms that the parties would have obviously assumed; and
  3. Where the proposed term is implied by law;

(see M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., [1999] 1 S.C.R. 619 at 634–635 [M.J.B.]; Machtinger v. HOJ Industries Ltd., [1992] 1 S.C.R. 986 at 1009–1010, per McLachlin J., as she then was; Union Road Properties Ltd. v. British Columbia, 2019 BCCA 302 at para. 18).

[        In considering whether certain terms of a settlement contract were implied, the court will look at the settlement discussions and the documentation and correspondence in the context of normal business and common sense: Urban Handyman Inc. v. Should I stay or Should I Go West Productions Inc., 2015 BCSC 1780 at para. 56, quoting Cellular Rental Systems Inc. v. Bell Mobility Cellular Inc., [1995] O.J. No. 721 (Gen. Div.).

 

When considering whether an implied term is necessary, the court must not slip into a determination of the intention of reasonable parties; the term must have “a certain degree of obviousness to it” that the actual parties would have intended at the time of contract formation: M.J.B., at 635; Illidge v. Sona Resources Corporation, 2019 BCCA 89 at para 23, quoting Moulton Contract Ltd. v. British Columbia, 2015 BCCA 89 at paras. 55, 58.

 

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