September 15, 2023

By Jonathon Clark

Breach of contract cases are common in Ontario courts.

Trials are about finding facts from evidence, and the great secret of judging is that applying the law is, then, usually easy.

THE ISSUE

In a breach of contract case, one of the key factual disputes is usually over what the contract means, or at least what it means now that something has happened that the parties never expected or intended. Contracts seldom provide clearly for the unexpected.

In recent years, appeal courts have done great work to clarify the legal principles judges and lawyers must attempt to apply. That does not make it easy, but at least it is less difficult.

THE CASE

The Ontario Court of Appeal recently summarized these points neatly in Jakab v. Clean Harbors Canada, Inc.:

• Contractual interpretation is an exercise in discovering the “objective intentions of the parties as expressed in the words of the contract”.
• This “fact-specific goal” requires a trial court to “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 formation of the contract”.
• When a contract is read as a whole, it should be interpreted “in a manner that gives meaning to all of its terms and avoids an interpretation that would render one or more of its terms ineffective”.
• The exercise of interpretation should also reflect the factual matrix underlying the contract and accord with sound commercial principles and good business sense while avoiding commercially absurd interpretations:
• However, “the [surrounding circumstances] should never be allowed to overwhelm the words of [the] agreement”.
• If ambiguity in contract terms still remains after the above principles are applied, the rule of contra proferentem can be applied. Its role is to give effect to an ambiguous clause by preferring the reasonable interpretation that favours the party that did not have control over its drafting:

Let’s talk about those more closely.

Most clients arrive in their lawyer’s office with a clear idea of what they wish the contract means – this is “subjective” intention”, not the joint or “objective” intention shared by both parties. The proper question is not “What would you have wished the contract had stated about this mess you find yourselves in?” but rather, “If both parties had sat down with these facts in mind at the beginning of the contract, what would they have agreed to?” No one says that judging is easy. This is a very hard exercise, and one clients often struggle to understand.

Reading the contract as a whole is what is known as “purposive” interpretation. In earlier days, interpretation focused on individual words and phrases in isolation. That is no longer the rule. Modern interpretation looks at the whole picture. This goes with the principle of avoiding “commercial absurdity”, which we have written about before.

Excuse the Latin “contra proferentem”. Judges have yet to come up with a short English phrase to describe how residual ambiguity is resolved. The dispute sometimes comes down to “whose wording is this?” This is particularly prevalent in cases involving standard form contracts or other agreements drafted on behalf of one party where the other party is told to “take it or leave it”.

TAKEAWAYS

• Applying these principles is, as already described, fact-specific.
• For this reason, a good lawyer preparing the case will focus on the facts. As we like to say, “cases are 90% facts, and only 10% law”.
• In law school, students are given facts and learn how to apply law to those facts.
• Good lawyers understand how judges think.
• The way judges think may surprise clients or self-represented parties.

HOW WEILERS LLP CAN HELP YOU

New graduates often have a rude awakening to the realities of being a lawyer. Part of what we do at Weilers LLP is mentor new lawyers in this art of digging for facts, recognizing the important facts, and THEN applying the principles of interpretation. We like to think that we have been successful for over 75 years because we have knowledgeable and experienced senior lawyers who are willing to share what they have learned and new lawyers who want to become better lawyers.

If you find yourself in a disagreement over the meaning of a contract, the Weilers LLP team may be the right lawyers to help you.