In its recent decision in Corner Brook (City) v Bailey, 2021 SCC 29, the Supreme Court confirmed that the principles of contractual interpretation established in Sattva Capital Corp. v. Creston Moly Corp. apply to the interpretation of releases. In other words, there is no longer a special interpretation principle that applies to releases.
The facts of this decision are fairly straightforward. While driving her husband’s car, Mary Bailey struck an employee of the City of Corner Brook named David Temple. Mr. Temple sued Mrs. Bailey.
Mrs. Bailey also commenced a separate action against the City for her personal injuries and the damage to the car. She reached a settlement with the City and signed a release from liability in favour of the City.
Several years later, Mrs. Bailey commenced a third party claim against the City for contribution and indemnity in the lawsuit brought against her by Mr. Temple. The City argued that the third party claim was barred because of the release Mrs. Bailey signed.
The application judge agreed with the City and held that the release barred Mrs. Bailey’s third party claim. In interpreting the release, the application judge relied on the Blackmore rule derived from the British House of Lords decision in London and South Western Railway Co. v. Blackmore.
The Newfoundland and Labrador Court of Appeal allowed the appeal and held that the third party claim was not barred. The Supreme Court disagreed with the Court of Appeal and reinstated the application judge’s decision.
The Supreme Court held that the Blackmore rule, which was a specific rule of contractual interpretation for releases, has outlived its usefulness and should no longer be referred to. Rather, courts should rely on the approach to contractual interpretation that was adopted in Sattva when interpreting releases. This means that the release is to 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 release.
The Supreme Court concluded that the Blackmore rule and the interpretation given to it by Canadian courts is in line with the law of contractual interpretation generally. Consistent with general principles of contractual interpretation, the Blackmore rule has been interpreted to mean that the subjective intention of the parties will not be considered. Similarly, the Blackmore rule as applied by Canadian courts does not preclude parties from releasing unknown claims. With sufficient language, it is possible for a release to cover an unknown claim. Given the narrow manner in which the Blackmore rule has been interpreted by Canadian courts, the Supreme Court concluded that it no longer served a useful purpose.
While the same general principles of contractual interpretation apply to releases, the Supreme Court noted that there are some unique features of releases that may cause more frequent tension between the ordinary meaning of the words and the surrounding circumstances. Releases tend to use the broadest possible words and try to account for risks that are unknown at the time they are entered into. In resolving this tension, courts may interpret releases more narrowly simply because the broad wording of the release can conflict with the surrounding circumstances. This is not, however, because of any special interpretation rule that applies to releases.
The Supreme Court’s decision in Bailey provides helpful clarification regarding the principles that apply to the interpretation of releases. While the Blackmore rule has been interpreted by Canadian courts in a manner consistent with Sattva, the Blackmore rule no longer adds anything useful when interpreting releases and courts should no longer refer to it. Instead, courts should rely on the general contractual interpretation principles established in Sattva.
The Supreme Court also offers useful guidance to those tasked with drafting releases. The court notes that releases that are more narrow (i.e. limited to a particular time frame or subject matter) are less likely to give rise to a tension between the words and what the surrounding circumstances demonstrate the parties objectively intended.
The Supreme Court also emphasized that it is not necessary for a release to spell out every single type of claim imaginable one by one. The wording used in Mrs. Bailey’s release (“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 which occurred on or about March 3, 2009”) encompassed the third party claim, even though third party claims were not explicitly mentioned.
For those lawyers who draft or advise their clients on releases, the Supreme Court’s decision in Bailey is a must-read.