Contractual interpretation of mandatory statutory terms is a question of law

Jul 25, 2018 4 MIN READ
W. David Rankin

Partner, Disputes, Toronto

In CHN Canada Ltd. v. Chesterman Farm Equipment Ltd., 2018 ONCA 637, the Court of Appeal for Ontario confirmed that the interpretation of an agreement that incorporates mandatory statutory terms is a question of law. This is another exception to the general principle laid down in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, that contractual interpretation generally involves questions of mixed fact and law, which has implications for appellate jurisdiction and the standard of review.

Background and appellate jurisdiction

CHN Canada involved a dispute over the non-renewal of a dealership agreement for farm implements, which is a regulated contract under the Farm Implements Act, R.S.O. 1990, c. F.4 and the Dealership Agreements Regulation, O. Reg. 123/06. The Agriculture, Food and Rural Affairs Appeal Tribunal (“Tribunal”) has jurisdiction to address disputes between parties to such contracts.

In CHN Canada, a farm implements dealer initiated proceedings in the Tribunal arguing that its distributor improperly ended the dealership agreement. Although the distributor complied with the non-renewal clause in the agreement as entered into by the parties, the Regulations had been amended after the agreement was written to prescribe a different process. The Tribunal awarded damages to the dealer on the basis that the Regulations had retroactively amended the agreement.

The distributor exercised its right under the Farm Implements Act to appeal to the Divisional Court, which led to an appeal and cross-appeal in the Court of Appeal. As the statutory right of appeal was limited to questions of law, the appeals and cross-appeal turned first on whether the grounds of appeal were questions of law (within appellate jurisdiction), or questions of mixed fact and law (outside appellant jurisdiction). Secondarily, the case turned on the applicable standard of review.

Question of law in contractual interpretation

As readers of this Blog know, there is a growing body of law on whether contractual interpretation raises questions of law or questions of mixed law and fact. Sattva established the general rule that such questions are generally mixed law and fact. Since Sattva, exceptions have proliferated. For more on this, see Sopinka & Gelowitz on the Conduct of an Appeal, Fourth Edition, chapter 2, part B(4).

CHN Canada represents another instance where contractual interpretation will raise questions of pure law: the interpretation of an agreement that incorporates mandatory statutory terms. The Tribunal interpreted the Regulations, determined that they applied retroactively, and revised the language of the parties’ agreement to incorporate the mandatory statutory language from the Regulations. This intersection between contract and statute does not depend on the factual circumstances surrounding the parties’ contract. As Miller J.A. wrote for the Court of Appeal:

[46] I agree that whether the Dealership Agreement, as amended by the Regulation provided [the distributor] with a right of non-renewal is a question of law. The renewal provisions in the Regulation are mandatory statutory terms that must be included in dealership agreements. In my view, the interpretation of a contract incorporating statutory terms by operation of law is of precedential value and transcends the particular factual circumstances of the parties in this dispute.

The interpretation of the renewal clause, as amended by the Regulations, was thus a question of law. Miller J.A. went on to hold, however, that it was a question of mixed fact and law to determine whether the distributor properly exercised that right of non-renewal. Such a determination requires applying the proper construction of the renewal clause to what the distributor actually did, in fact.

Standard of review

Even though CHN Canada involves questions of pure law, the Court of Appeal applied the reasonableness standard and affirmed the decision of the Tribunal in favour of the dealer. The standard of review on statutory appeals from administrative tribunals is determined under the administrative law framework, much like on an application for judicial review. Under that framework, a tribunal’s interpretation of its home statute is presumptively reviewed on the reasonableness standard, subject to mostly-defined exceptions where the correctness standard may apply (e.g., questions of central importance to the legal system as whole and outside the expertise of the tribunal). For more on the framework for determining the standard of review for statutory appeals, see section 2.52 of Sopinka & Gelowitz on the Conduct of an Appeal, Fourth Edition.