The Supreme Court of Canada has replaced the 150 year old Blackmore rule with the standard contractual interpretation principles articulated in Sattva Capital Corp. v Creston Moly Corp.[1] This signals a major change in how releases will be interpreted going forward.
The Blackmore Rule
The Blackmore rule, laid down in 1870, provided that the general words in a release are always limited to those things which were specifically in the contemplation of the parties at the time the release was given.[2] Courts have relied on the Blackmore rule to hold that any claim arising after a release is executed that was not contemplated by the parties is not covered by the release.
The Decision in Corner Brook
In Corner Brook (City) v Bailey,[3] the Court unanimously clarified the appropriate approach for interpreting the scope of a release. Here, a release was provided in the settlement of an action arising from a car accident, in which Bailey struck a City employee who was performing road work with her husband’s car. The City employee sued Bailey to recover for the injuries he sustained in the accident. In a separate action, Bailey and her husband sued the City for damages to the car and Bailey’s physical injuries. Bailey and her husband settled this claim with the City, discontinued their action, and released the City from liability relating to the accident.
Years afterward, the Baileys brought another action against the City seeking contribution and/or indemnity in the claim brought by the City employee. The City moved for summary judgment, arguing that the release barred the third party claim. In response, the Baileys relied on the Blackmore rule and argued the release did not apply to the third party claim because it was not specifically contemplated when the release was signed.
The Court confirmed that the Blackmore rule has outlived its usefulness and is now fully overtaken by the principles set out in Sattva.[4] The Court found that the wording “all actions, suits, causes of action. . . foreseen or unforeseen . . . and claims of any kind or nature whatsoever arising out of or relating to the accident” clearly applied to the third party claim.[5] In Sattva the court held that “the interpretation of contracts has evolved towards a practical, common-sense approach not dominated by technical rules of construction” and that contractual interpretation requires that contracts 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.”[6]
Notably, the Court left open the question of whether, and in what circumstances, pre-contractual negotiations may be admissible as part of the “surrounding circumstances” to be considered in contractual interpretation.[7]
Interpretation of releases going forward
After Corner Brook, releases are to be interpreted in the same way as any other contractual provision, using the Sattva principles.[8] While the surrounding circumstances may be considered in interpreting the scope of a release, they will not oust the clear and plain meaning of the words in the contract.[9] As releases can often be phrased in broad terms, such as releasing ‘all claims present and future’, conflict between plain meaning and surrounding circumstances are likely. When these conflicts occur, Corner Brook clarifies that the plain meaning of the words will be paramount.[10]
Consequently, the particular time period and subject matter that a release is intended to cover should be explicitly set out in the release. A release should also be clear as to whether it is intended to cover future claims or claims not yet known to the parties. Drafting a release without this clear and specific limiting language may have the consequence of precluding any and all claims arising between the parties forever, including claims related to the dispute the parties intended to settle with the release.
[1] 2014 SCC 53 [Sattva]
[2] London and South Western Railway v. Blackmore (1870), L.R. 4 H.L. 610
[3] 2021 SCC 29 [Corner Brook]
[4] Corner Brook, at para 3
[5] Corner Brook, at para 51
[6]Sattva, at para 20 and 46
[7] Corner Brook, at para 57
[8] Corner Brook, at para 34
[9] Corner Brook, at para 35
[10] Corner Brook, at para 35
