SCC issues ‘big change’ to contract law – Sattva gives last word to trial judges, arbitrators

Mary Paterson

Aug 11, 2014

Julius Melnitzer, Law Times

(Recap)

Arbitrators and trial judges should have the last word in most cases that turn on the interpretation of contracts, the Supreme Court of Canada has found.

That’s the clear message from the top court’s recent landmark decision in Sattva Capital Corp. v. Creston Moly Corp. or it’s at least what many people will get from the ruling.

For lawyers, it’s a bit more technical. In rejecting the traditional view that contractual interpretation involves pure questions of law, the court ruled the exercise engaged questions of mixed fact and law.

At the core of the decision is the court’s reaffirmation of a modern and contextual approach to contract interpretation, one that involves a consideration of the “surrounding circumstances” in giving meaning to an agreement.

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According to Mary Paterson of Osler Hoskin & Harcourt LLP’s Toronto office, treating contractual interpretation as a matter of mixed fact and law is “more intellectually honest” than regarding the exercise as a pure question of law.

“The pure question of law approach assumes that all words mean the same thing to everyone and that a judge — even one unfamiliar with the industry or the context involved — can tell you what the parties meant,” she says.

“At the very least, the SCC’s approach acknowledges that interpreting a contract can be a complicated thing and that we all come to agreements from different perspectives and with different objectives.”

In other words, the top court’s approach accords with commercial reality and the way the courts have been approaching contractual interpretation in recent years.

“These days, courts are always asking what parties are trying to do,” says Paterson.

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Ultimately, the top court ruled that reasonableness, not correctness, was the appropriate standard for a review of an arbitrator’s decision on contractual interpretation (except on constitutional questions or matters of general importance to the legal system). According to Paterson, the same standard should apply to a review of a trial judge’s decisions regarding contractual interpretation.

“It wouldn’t make sense to give arbitrators more deference [by reviewing on the basis of reasonableness rather than correctness] than first-level judges,” says Paterson.

“But what this means is that even when leave is not required, the threshold for success on an appeal from a trial judgment involving contractual interpretation is higher than it was before.”

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