Written by Scott Bower, Preet Bell, Ranjan Agarwal, Ciara Mackey and Patrick Schembri
Releases are to be interpreted pursuant to the general principles of contractual interpretation, the Supreme Court of Canada recently held in Corner Brook (City) v Bailey, 2021 SCC 29 [Corner Brook]. The decision overtakes an earlier principle for narrowly interpreting the scope of a release—the Blackmore Rule—and brings the interpretation of releases in line with the general principles of contract interpretation adopted by the Supreme Court in Sattva Capital Corp v Creston Moly Corp, 2014 SCC 53 [Sattva]. Releases, like any other contract, must be read "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."
Due to their unique features, courts may be inclined to construe broadly worded releases more narrowly based on the surrounding circumstances when they are executed. The "ultimate question," according to the Supreme Court, is whether the claim falls under the type of claim to which the release is directed, depending on the wording and surrounding circumstances of the release in each case.
In Corner Brook, the respondent struck an employee of the City of Cornerbrook with her husband's car. The City employee sued the driver. The driver and her husband sued the City in a separate action for alleged property damage and injuries suffered by them in the accident. The action between the driver and her spouse and the City settled, and they signed a release drafted by City solicitors. The release included language that released the City from:
"all demands and claims of any kind or nature whatsoever arising out of or relating to the accident… and without limiting the generality of the foregoing from all claims raised or which could have been raised in the [action]."
Several years later, in that other action, the driver brought a third-party claim for contribution and indemnity against the City. The City applied for summary trial on the basis that the release precluded the third-party claim.
The Lower Court Decisions
Applying the Blackmore Rule, the application judge held that the broad wording of the release precluded the third-party claim against the City. The Court of Appeal of Newfoundland and Labrador allowed the appeal and reinstated the third-party claim. The Court of Appeal concluded that the Blackmore Rule had been subsumed into the general principles of contractual interpretation. Applying these general principles of contractual interpretation, the Court concluded the lower court had made several reviewable errors.
The Supreme Court of Canada Decision
The unanimous Supreme Court overturned the Court of Appeal's decision, holding that both the language of the release and the factual matrix aligned with the conclusion that the parties objectively intended the release to apply to the third-party claim against the City. In coming to this conclusion, the Court made several significant statements in relation to interpreting releases, and contracts generally.
The Rule in Blackmore
The Court held that a common law rule specific to interpreting releases—the Blackmore Rule—should no longer be applied as it had outlived its usefulness and been subsumed into the general principles of contractual interpretation set out in Sattva.
The Blackmore Rule set out a particular approach to interpreting releases, under which courts had to consider the surrounding circumstances and construe the release to apply only to facts or claims that the circumstances suggested the parties specifically contemplated. The rule did not prevent a release from applying to unknown claims, provided the language of the release was sufficiently clear.
Since in Sattva the Court held that a court must consider the factual matrix when interpreting a contract, the Blackmore Rule has become consistent with the general principles of contractual interpretation. As a result, it has outlived its usefulness and the Court stated that the rule, and the jurisprudence associated with it, should no longer be referred to.
Special Considerations When Interpreting Releases
While the ordinary principles of contractual interpretation in Sattva apply to releases, the Court acknowledged that releases tend to have certain qualities that may cause courts to interpret them more narrowly. First, parties tend to draft releases to apply very broadly, while the surrounding circumstances often show the parties objectively intended the release to only cover claims arising in relation to a particular incident or dispute. Second, parties to a release are generally trying to account for risks that are not yet known. Thus, the words of a release and the matters the parties objectively intended the release to apply to, based on the surrounding circumstances, are more likely to be dissonant than in most other contracts.
In harmonizing this dissonance, courts may properly construe the words of a release more narrowly than other contracts simply because the broad wording of releases can conflict with the circumstances, particularly for claims not in contemplation at the time of the release. That is also more likely to be the case the more broadly the parties draft the release.
The Court also confirmed that releases may apply to unknown claims with sufficiently clear language. The release will not have to catalogue all possible claims, but it will be helpful for the release to specify: (1) whether it applies to unknown claims; (2) whether it applies to claims related to a particular area or subject matter; and (3) whether the parties have narrowed it to a particular time frame, or if it is of an indefinite duration.
On the facts of the case, the Supreme Court held the application judge had properly considered the surrounding circumstances and the broad wording of the release to conclude that it was objectively intended to capture any claim whatsoever against the City relating to the accident.
Evidence of Contractual Negotiations in Contractual Interpretation
Interestingly, in obiter, the Court cited a longstanding rule that evidence of negotiations is inadmissible when interpreting a contract, but noted this rule was difficult to reconcile with the holding in Sattva that a court must consider the circumstances surrounding contract formation. The Court decided to leave this issue for another day.
The Supreme Court’s decision confirms that releases are to be interpreted in accordance with the general principles of contractual interpretation set out in Sattva. That said, the unique features of releases are likely to lead a court to construe broadly worded releases more narrowly, and the Supreme Court has clarified how parties can include unknown claims in a release.
Parties will want to carefully draft any release to encompass all claims that they intend to include, and exclude those which are not. Relevant matters to address may include the subject matter of the claims, the duration of the release and whether the release applies to unknown claims or facts.