Interpretation of releases: The Supreme Court of Canada lets go of 150-year-old rule

In its unanimous decision, Corner Brook (City) v Bailey, the Supreme Court of Canada held that the general rules of contractual interpretation articulated in Sattva Capital Corp. v Creston Moly Corp. now apply to releases. In other words, releases will now be interpreted in the same manner as any other contract.

This overtakes the 150-year-old approach to release interpretation, known as the “Blackmore Rule”, which held that “a release cannot apply, or be intended to apply to circumstances of which a party had no knowledge” at the time the release was executed. This meant that courts would interpret releases narrowly to apply only to the specific dispute that was settled by the parties pursuant to the release, even if the express language of the release also covered future and unknown claims. The Blackmore Rule no longer applies to the interpretation of releases as a result of Corner Brook.

Background

Facts

While driving her husband’s car, the individual defendant, Mary Bailey, struck an employee of the City of Corner Brook, David Temple, while Mr. Temple was performing work for the City (the “Incident”).

Mrs. Bailey and her husband (the “Baileys”) commenced an action against the City for damage to the car and physical injuries that Mrs. Bailey sustained in the Incident (the “Bailey Action”). In a separate action, Mr. Temple sued Mrs. Bailey for the injuries he suffered from the Incident (the “Temple Action”).

The Baileys settled the Bailey Action with the City, releasing the City from liability relating to the Incident, and discontinued their claim. The relevant excerpt of the release reads as follows:

. . . the [Baileys], on behalf of themselves and their heirs, dependents, executors, administrators, successors, assigns, and legal and personal representatives, hereby release and forever discharge the [City, its] servants, agents, officers, directors, managers, employees, their associated, affiliated and subsidiary legal entities and their legal successors and assigns, both jointly and severally, from all actions, suits, causes of action, debts, dues, accounts, benefits, bonds, covenants, contracts, costs, claims and demands whatsoever, including all claims for compensation, loss of use, loss of time, loss of wages, expenses, disability, past, present or future, and any aggravation, foreseen or unforeseen, as well as for injuries presently undisclosed and all demands and claims of any kind or nature whatsoever arising out of or relating to the accident which occurred on or about March 3, 2009, and without limiting the generality of the foregoing from all claims raised or which could have been raised in the [Bailey Action] . . . . [Emphasis in decision]

Almost 5 years later, Mrs. Bailey commenced an action against the City claiming contribution or indemnity from the City in the event she would be found liable in the Temple Action (the “Third Party Claim”). The City brought a summary trial application and sought a stay on the basis that the release barred the Third Party Claim.

Procedural history

The Newfoundland Supreme Court allowed the City’s application to stay the Third Party Claim based on (i) the wording of the release; (ii) the finding that Mrs. Bailey had contemplated the facts underlying the Third Party Claim due to her being served with the Temple Action prior to signing the release; and (iii) the finding that the parties had contemplated any and all types of claims relating to the Incident based on correspondence between counsel leading up to the release.

The Court of Appeal unanimously allowed the Baileys’ appeal and reinstated the Third Party Claim. The Court of Appeal noted that the Blackmore Rule has, over time, been subsumed into the general rules of contractual interpretation set out in Sattva and Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co. Accordingly, the Court of Appeal concluded that the words, the context, and the exchange of correspondence were all consistent with the release only releasing Mrs. Bailey’s claims in the Bailey Action and did not specifically bar the Third Party Claim.

The Supreme Court of Canada allowed the City’s appeal and reinstated the Supreme Court’s decision.

Holding: Blackmore Rule overtaken by Sattva

In the unanimous decision authored by Rowe J., the Supreme Court of Canada found that the Third Party Claim came within the plain meaning of the language of the release. The surrounding circumstances also confirmed that the parties knew, or ought to have known, about the facts underlying the Third Party Claim when they executed the release.

The Court held that the Blackmore Rule no longer applies, and that the general rules of contractual interpretation set out in Sattva now apply to releases. In dealing with a release, as with any other contract, courts should “read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of contract formation.” Rowe J. noted that any future judicial tendency to narrow the meaning given to language in a release will not be “the function of any special rule, but rather a function of the context in which releases are given.”

Take-away

Accordingly, the key question is whether a claim in question is one that the parties mutually intended to release upon execution. Courts will review the language of the release, as well as the surrounding circumstances, to interpret the objective meaning of that language and arrive at a determination. As noted by the Supreme Court of Canada, drafters should use wording that makes it clear whether the release will cover unknown claims and whether the claims must relate to a particular area or subject matter. Releases that are drafted using language which unambiguously specifies a particular time frame or subject matter are less likely to give rise to tension between the words and what the surrounding circumstances indicate the parties objectively intended.

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