The Supreme Court of Canada heard the matter of Corner Brook (City) v. Bailey in March of 2021. This appeal centered on the proper approach to interpreting the scope of a release and whether or not there is an interpretive rule that applies specifically to releases.
In March of 2009, the respondent, Mrs. Bailey, struck an employee of the appellant City of Corner Brook with her husband’s car. The respondent commenced an action against the City for property damage to the car and physical injury suffered by Mrs. Bailey. The City employee commenced a separate action against Mrs. Bailey, seeking compensation for the injuries that he sustained in the accident.
The respondent and the City entered into settlement discussions via their counsel in 2011. The respondent and the City came to an agreement to resolve the matter for $7,500.00, contingent on discontinuance and execution of a full and final release to the City’s satisfaction. 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 added.]
In March of 2016, Mrs. Bailey commenced a third-party claim against the City in the action involving the City’s employee, claiming contribution or indemnity from the City in the event that she was found liable to the employee in his claim against her.
The City brought a summary trial application pursuant to Rule 17A of the Rules of the Supreme Court. The City’s position was that the release barred the third-party claim. Mrs. Bailey’s position was that it did not, because the third-party claim was not specifically contemplated by the City and the respondent when they signed the release.
The application judge concluded that the release barred Mrs. Bailey’s third-party claim against the City and stayed the claim. The Court of Appeal unanimously allowed the appeal and reinstated the third-party notice.
Justice Rowe J. held that the appeal should be allowed, and the order of the application judge reinstated.
Justice Rowe began with an analysis of the guiding rule for the interpretation of contracts, as set out in Sattva Capital Corp v. Creston Moly Corp, 2014 SCC 53. Traditionally, the interpretation of contracts was a matter of law, not fact. Courts are now directed 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. The facts surrounding the formation of a contract are now relevant to its interpretation. Further, there is no special rule of contractual interpretation that applies only to releases. A release is a contract, and the general principles of contractual interpretation apply.
The rule set out in London and South Western Railway v. Blackmore (1870), L.R. 4 H.L. 610 (“the Blackmore Rule”), which stated that 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 the release was given, has been overtaken by the general principles of contract law set out in Sattva. Historically, the Blackmore Rule allowed courts to consider factual context when that was not the general rule, but this has been overtaken by a general rule that factual context is considered in interpreting contracts
Justice Rowe stated that a release can cover an unknown claim with sufficient language and does not necessarily need to particularize with precision the exact claims that fall within its scope. In entering into a release, the parties bargain for finality. The releasor takes on the risk of relinquishing the value of the claims he or she might have had, and the releasee pays for the guarantee that no such claims will be brought. The court in Sattva stated that the interpretation of contracts has evolved towards a practical, common-sense approach not dominated by technical rules of construction.
After considering the wording of the release, Justice Rowe concluded that the wording encompassed Mrs. Bailey’s third-party claim against the City, arising out of the City employee’s damages from the accident. If the wording of the release was held to be insufficient to include a claim arising out of the subject accident, it would be difficult to imagine wording that would be sufficient. Both the City and Mrs. Bailey were aware that the respondent had struck a City employee with her car, and both were aware that the other knew. Both the City and Mrs. Bailey therefore knew, or ought to have known on an objective basis, that the City employee who had been hit may have an outstanding claim against Mrs. Bailey, the City, or both, and that this claim could put them in an adverse position to one another, where it would have been advantageous to put the damages on the other.
To conclude, Justice Rowe found that there was no reviewable error in the application judge’s conclusion that the release included Mrs. Bailey’s third-party claim. The claim came from within the plain meaning of the words of the release and the surrounding circumstances confirmed that the parties had objective knowledge of all of the facts underlying Mrs. Baileys third-party claim when they executed the release.