November 9, 2021

By Brian Babcock

For 150 years in Canada, releases have been interpreted differently than other contracts. That will no longer be the case after the Supreme Court ruling in Corner Brook (City) v. Bailey. The court has stated that because a release is a contract, general rules of contract interpretation ought to apply.

In 2014, the Court reviewed and restated the general rules for contracts in a decision called Sattva. Prior to Sattva, the general rule was that contracts were interpreted on the ordinary meaning of their wording. After Sattva, courts began to interpret contracts in the context of their surrounding facts as known to the parties at the time the contract was entered into.

Releases had been interpreted under a special set of rules developed since the 1870 British House of Lords decision known as Blackmore. As a general rule, releases were to be interpreted narrowly, so as to release fewer rather than greater rights, a departure from the rule of looking for the ordinary meaning. Added to this was the “Blackmore Rule”:

The general words in a release are limited always to that thing or those things which were specially in the contemplation of the parties at the time when the release was given. But a dispute that had not emerged, or a          question which had not at all arisen, cannot be considered as bound and concluded by the anticipatory words of a general release.

Frequently, disputes over releases deal with claims unknown to the parties at the time of the signing. If appropriate wording was used in the release, they could still be included in the release in spite of the Blackmore Rule, allowing the parties to “wipe the slate clean”. However, a simple wording releasing “all claims” would typically be read as NOT including claims not yet known to the parties.

In the Corner Brook decision, the Supreme Court states that “The Blackmore Rule and the jurisprudence pursuant to it should no longer be referred to, as the function that it had served has been subsumed entirely by the approach set out in Sattva.”

There is no longer any special rule of interpretation that applies only to releases.

Releases may still be interpreted narrowly, but that will be because of the features commonly found in releases, not any special rule. The Sattva rules will allow judges to look at the context to determine the objective intent of the parties. The broader the wording of the release, the more important it is to consider surrounding circumstances.

The Supreme Court uses an example from a recent British case, that of:

a mutual general release on a settlement of final partnership accounts, and explained that depending on the circumstances, such a release may be properly confined to claims arising out of the partnership, and could not be taken to preclude a claim that later came to light that tree roots from one partner’s property had damaged the foundations of a neighbouring partner’s house.

As a footnote, it is important to note that:

  • The knowledge of “surrounding circumstances” is objective, not subjective.
  • Evidence of pre-contractual negotiations, because it only goes to subjective knowledge or intention, is still generally not relevant.
  • The question of when pre-contractual negotiations ARE relevant may be decided in a future case.

All too often, releases are an afterthought, with neither the drafters nor the parties paying careful attention to the wording. Corner Brook demonstrates the importance of reading over the release carefully and thinking about whether it matches your intentions, particularly but not limited to what if any future claims might be excluded from the release. Of course, it helps if your lawyer, in drafting or reviewing the draft release, knows your intentions and can capably do the necessary drafting.