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Nothing but the Facts: A Story About Interpreting Contracts

Nothing but the Facts: A Story About Interpreting Contracts

March 26, 2022

By Brian Babcock

It is dangerous to fall in love with an attractive legal quotation and expect that it will decide your case in your favour.

Most lawsuits are ninety per cent about the facts and only ten per cent about the law. That is a truism that I was taught many years ago and that I try and pass on to my students. I get them in second or third year. In first year law school, they get stuffed full of law, by studying cases where the facts are already settled. Part of my job in training them to be lawyers is to educate them about the real world beyond law school, and the role of storytelling.  Because advocacy is mainly about story telling, and the better the facts, the better your story.

Capital Sewer Servicing Inc. v. Crosslinx Transit Solutions Constructors, illustrates the point. It is a Court of Appeal case where the issue was not what the law was – the parties pretty much agreed on that – but rather, how that law applied to the facts of the case.

Unlike a typical case, the facts were not even in dispute. This is a story of about as pure contractual interpretation as you will see.

The issue was whether a contractor (Crosslinx) or its sub-contractor (Capital) was responsible for damages. The actual damages resulted from Capital’s work under the contract.

The challenge of interpretation was complicated, because it involved three related contracts.

“ProjectCo” had contracted with Metrolinx to build a light rail transit line. This Project Contract required ProjectCo to maintain Primary Wrap-up insurance protecting all parties involved in the construction against liability claims for damage caused by the construction.

ProjectCo in turn required Crosslinx to maintain this “Wrap up Insurance” in the Primary Contract. It was said to be “primary” insurance.

Capital argued that this answered the question. Crosslinx had to pay, or more exactly, Crosslinx’s insurer had to pay.

Capital argued this based upon a long line of cases about allocation of risk under contract that found that a covenant to insure against a certain peril constitutes an assumption of the risk of harm or damage caused by that peril.

That is the legal principle that Capital relied upon, to its ultimate peril.

As Crosslinx undertook to provide the Wrap-up insurance, Capital argued that Crosslinx assumed responsibility for any damages caused when the harm insured against occurred, triggering the Wrap Up insurance for the benefit of both Crosslinx and Capital.

The Court of Appeal agreed with Capital that this statement of law was generally correct, and applied in most situations.

However, the court found that this was not the end of the story.

Why not?

Because the Primary Contract was only part of the facts. Capital was not even a party to that contract. But it had signed a Sub-Contract in which it promised to indemnify Crosslinx in respect of any liability claims caused by Capital’s actions in performing the Sub-contract.

‘So what?’ Capital essentially said, ‘The Sub-contract incorporates the Wrap-up insurance.’

‘Not so fast’ was basically what the Court said. Even if Capital ultimately can argue with the Wrap-up insurer that Capital is indemnified under that policy, under contract between Crosslinx and Capital, Capital is responsible. This has practical consequences in terms of deductible, which may be quite high under large construction insurance policies.

The court clarifies that “each contract containing a covenant to insure must be interpreted based upon its own wording.” Though prior cases (and the legal principles from those cases) may be helpful in that analysis, differences in wording may be crucial to the result.

Though we do not have light rail in Thunder Bay, we certainly do have construction disputes.

The best time to do this analysis is to have a lawyer examine crucial contract issues such as indemnity clauses, allocation of risk and insurance before you sign. At Weilers LLP, we have commercial lawyers experienced in construction disputes who work closely with the insurance lawyers in our litigation team, who can give you an opinion in most situations. We do not just rely on basic legal principles, we rely upon experience and research.  You deserve to know the risk involved, so that you may renegotiate the contract, or seek appropriate insurance.

If despite this due diligence, you do get sued, the Weilers law litigation team are highly experienced in construction disputes. We take the time and do the work to look behind and beyond pithy quotations. We work hard to understand your story, all the better to tell it to a court.

Give Weilers LLP a call, whether before you sign, after the dispute arises, or after you are sued. We may be the right lawyers for you.