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Monday Morning Case Bites for July 26, 2021

Last Week’s Court Rulings from the Alberta Court of Queen’s Bench, Court of Appeal and SCC.

Edited by Steven Graham

Corner Brook (City) v Bailey, 2021 SCC 29
Third Party Claim | Release | Contractual Interpretation

McKay v Cody, 2021 ABQB 573
Limitation Period

Corner Brook (City) v Bailey, 2021 SCC 29

This decision involved a motor vehicle accident between the Respondent Bailey and a municipal worker. The worker, Temple, sued Bailey for personal injuries which he suffered. Out of the same accident, Bailey and her husband sued the City of Corner Brook for property damage to her vehicle and personal injuries. Bailey and the City settled their claim, and Bailey released the City from liability relating to the accident and discontinued her claim. However, the action by Temple continued, and years later Bailey, as Defendant in that action, brought a third party claim against the City for contribution or indemnity. In a summary trial before the Superior Court, the application justice determined that the third party claim was barred by the release given by Bailey in her action with the City. That decision was overturned by the Court of Appeal.

The Supreme Court of Canada examined the correspondence leading to the settlement of Bailey’s claim with the City, and the specific wording of the release, which provided the following:

[7]       … On August 12, 2011, counsel for the City replied. He rejected the $10,000 settlement offer, noting that his client “feels strongly on liability”, but explained that his client was “aware that all litigation carries risks and costs” and was therefore prepared to make an offer of $7,500 to resolve the matter, contingent on discontinuance and execution of a full and final release to the City’s satisfaction. On August 16, 2011, counsel for the Baileys said that his clients accept. The Baileys signed the release on August 26, 2011. 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.]

At issue in the Courts below was whether the Blackmore decision from 1870 applied, which provided that when interpreting a release, the general words are always limited to those things specifically contemplated by the parties at the time the release was given.

The Supreme Court, however, concluded that the Blackmore approach is no longer appropriate given the Supreme Court ruling in Sattva Capital Corp v Creston Moly Corp (2014 SCC 53). The Supreme Court maintained that the direction in Sattva, 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” is the only approach to contractual interpretation, and releases are not given any special consideration.

The Supreme Court further affirmed that releases can cover unknown claims with sufficient language and need not specifically particularize all claims falling within its scope:

[27]                          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, or as Lord Nicholls put it, “to wipe the slate clean”: Ali, at para. 23. 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 uncertainty or risk that is allocated to the releasor is precisely what the releasee pays for. Of course, difficulty can arise in deciding what wording is sufficient to encompass the unknown claim at issue in a given case. However, it is clear that releases can encompass such claims, and the Blackmore Rule has not been interpreted to hold otherwise.

The Supreme Court noted that there can often be dissonance between the words of the release and what the parties appear to have objectively intended. The often broad wording of releases can sometimes give rise to a narrow interpretation, but the Court maintained that it is not because the contract is a release that it is being interpreted narrowly or otherwise, but a function of the words used:

[38]                          For these reasons, releases may tend to lead to dissonance between the words of the agreement on their face and what the parties seem to have objectively intended based on the surrounding circumstances, with greater regularity than other types of contracts: see Cass, at p. 89. In resolving this tension, courts can be persuaded to interpret releases narrowly more so than other types of contracts, not because there is any special rule of interpretation that applies to releases, but simply because the broad wording of releases can conflict with the circumstances, especially for claims not in contemplation at the time of the release. The broader the wording of the release, the more likely this is to be so.

The Supreme Court confirmed that the standard of review for contractual interpretation is one of mixed fact and law, unless there is an extricable question of law. The Supreme Court noted the Court of Appeal found three errors on questions of law in the application judge’s decision:

[45]                          In the present case, the Court of Appeal held that the application judge made three errors on extricable questions of law, at paras. 50-52:

Firstly, what was in the contemplation of the City in drafting the Release is not determinative of mutual intent.

Secondly, it was in fact necessary to determine what was “specifically” contemplated by both parties.

Thirdly, it was not sufficient that the broad general wording of the Release potentially covered a subsequent third party action for contribution if the surrounding circumstances suggested otherwise.

The Supreme Court disagreed on all of the above points, finding that the application judge made no error in considering what was objectively contemplated by both parties with respect to the release, and finding that the second and third points were not extricable questions of law:

[47]                          The second and third points are not extricable questions of law. This Court held in Sattva that whether something was or reasonably should have been within the common knowledge of both parties at the time a contract was entered into is a question of fact. The Court of Appeal treated the question of how the surrounding circumstances inform the words of a contract as an “extricable question of law”. This undermines the deferential approach to appellate review of contractual interpretation urged by this Court in Sattva. The Court of Appeal simply disagreed with the application judge’s interpretation of the surrounding circumstances, characterized it as a question of law, and then substituted its own factual conclusions. This does not accord with Sattva.

[48]                          The application judge considered the surrounding circumstances, and he made a finding about what was in the contemplation or mutual intention of both parties: paras. 23 and 43. The application judge went on to conclude that it was not “necessary that the parties be specifically contemplating a particular type of claim. Instead . . . it is sufficient [that] the parties were contemplating any and all types of claims relating to a particular event such as the Accident”: para. 44. That is to say, he determined that the parties were specifically contemplating any and all claims relating to the accident, including Mrs. Bailey’s third party claim. Even though they may not have explicitly turned their minds to the possibility of a third party claim in particular, it was their objective, mutual intent to cover such a claim within the scope of the release. This holding is a fact-specific application of the principles of contractual interpretation, and it was owed deference.

The Supreme Court also disagreed with the Court of Appeal’s critique of the application judge for failing to consider Bailey’s knowledge of the Temple action, given that the City had no knowledge of the Temple action:

[49]                          Although it is not one of the three extricable errors of law identified by the Court of Appeal, I also point out that the Court of Appeal criticizes the application judge for failing to consider “the Baileys’ continuing knowledge of the Temple action and whether it could realistically be said to continue to have been in their contemplation when the Release was signed” given that they had delivered the statement of claim in the Temple Action to their insurers: para. 39. But this is not an error either. Mrs. Bailey’s subjective knowledge of the Temple Action, or lack thereof, is irrelevant under an objective theory of contract law, because unless that knowledge was communicated to the City, it is not a “surrounding circumstance” within the “common knowledge” of the parties: Sattva, at para. 58. What is privately in the mind of one party could not affect how that party’s conduct would appear to a reasonable observer in the position of the other: see Owners, Strata Plan LMS 3905 v. Crystal Square Parking Corp., 2020 SCC 29, at para. 33. I make no comment on the possibility that the law may provide a remedy for the sharp practice of a releasee who intentionally does not disclose the existence of a claim to the releasor, as noted by Lord Nicholls in Ali, at paras. 32-33, and by Lord Hoffmann, at paras. 67-71. However, the fact that Mrs. Bailey, the releasor, may have had private knowledge of a claim is irrelevant in interpreting the release to determine whether or not she accidentally released that claim. As Lord Hoffmann observed in Ali, at para. 49: “It would be contrary to basic principles of construction for the meaning of a document to be affected by facts which were known to one party but not reasonably available to the other.”

[50]                          The application judge did not rely on Mrs. Bailey’s subjective knowledge of the Temple Action in assessing the parties’ mutual intent. He did find it “noteworthy” that Mrs. Bailey was aware or ought to have been aware of the Temple Action when she signed the release, having already been served with the statement of claim, but this observation did not form part of his analysis of “what was in the contemplation of the parties”: para. 29. While not a model of clarity, he therefore avoided falling into the same error as the Court of Appeal.

The Supreme Court then offered its comments on interpreting the specific wording of the release and found no error in the application judge’s conclusion that the release encompassed the Bailey’s’ third party claim:

[51]                          I see no reviewable error in the application judge’s conclusion that the wording of the release encompasses Mrs. Bailey’s third party claim. The release includes “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”. This wording encompasses Mrs. Bailey’s third party claim, arising out of Mr. Temple’s damages from the accident. If this wording is held to be insufficient to include a claim arising out of the accident, it is hard to imagine what wording would be sufficient, aside from listing every type of claim imaginable one by one (third party claims, cross claims, counter claims, subrogated claims, claims in equity and common law, statutory claims, etc.). There is no principled reason to require parties to particularize the scope of the release in this fashion.

[52]                          The next clause of the release affirms this broad interpretation. The contract does specifically reference “claims raised or which could have been raised in the [Bailey Action]”, but it references these claims in the context of specifying that the foregoing generality of the release is not limited to them. This indicates that the “foregoing” is more general than claims that were or could have been raised in the Bailey Action. Otherwise the portion of the release that precedes “without limiting the generality of the foregoing” would be redundant. The application judge makes these points at paras. 21-22. There is no palpable and overriding error in his reading.

In regard to the surrounding circumstances, the Supreme Court noted that the City and the Baileys were aware that Mrs. Bailey struck a city employee, and therefore knew or ought to have known the City employee may have an outstanding claim against one or both of them, and the application judge accounted for this in his decision:

[54]                          The application judge concluded that “it is sufficient [that] the parties were contemplating any and all types of claims relating to a particular event such as the Accident”. In other words, because the parties narrowed the subject matter of the release to claims arising out of a particular event, the application judge found no tension between the words and the surrounding circumstances. As in Biancaniello, the release was circumscribed, and nothing in the surrounding circumstances indicated to the application judge that the words of the release should be interpreted to depart from what on a plain reading they would mean.

The Court also observed that there is a longstanding traditional rule that evidence of negotiations is inadmissible when interpreting a contract, citing the dissenting reasons in Resolute FP Canada Inc. (2019 SCC 60). The Supreme Court declined to offer any ruling on this specific principle given the question had not been argued fully in this particular case.

As no reviewable errors were found in the application judge’s decision, the Supreme Court granted the appeal and reinstated the decision of the application judge.

McKay v Cody, 2021 ABQB 573

The Defendants brought an application to summarily dismiss the Plaintiff’s action for failing to seek a remedial order within two years as required by section 3.1 of the Limitations Act.

The Defendants were hired by the Plaintiff to sue the Plaintiff’s former lawyer. That action was dismissed for long delay, and in this action the Plaintiff sued the Defendants.

The long delay application was granted October 4, 2017 by Master Schulz and her written decision was rendered November 6, 2017. On appeal, Justice Ross upheld Master Schulz’s decision and gave her written reasons on November 29, 2018. A subsequent appeal to the Court of Appeal was dismissed on April 3, 2020.

The Plaintiff commenced this action on November 27, 2020, which the Court noted was two days prior to the two year period expiring after the written decision of Justice Ross.

The Court concluded that the evidence was clear that the Plaintiff knew of the facts supporting his claim when Master Schulz’ decision was communicated to him.

The Court further concluded that there were no barriers to the Plaintiff commencing an action following Master Schulz’s decision:

[9]               The Court of Appeal addressed this question in Hoopp Realty Inc v Emery Jamieson LLP2020 ABCA 159 at para 56:

[56] This Court has adopted the guidance from Novak v Bond, 1999 CanLII 685 (SCC), [1999] 1 SCR 808, 8 WWR 499 as to when an injury would warrant bringing a proceeding. This provision speaks not to the legal strength of a plaintiff’s case for recovery, but to the circumstances of the plaintiff: Nipshank v Trimble2014 ABQB 120 at para 9. As set out in N(J) v Kozens2004 ABCA 394:

[14] In Novak v. Bond, supra, Major, J. noted that the critical time is one “at which a reasonable person would consider that someone in the plaintiff’s position, acting reasonably in light of his or her own circumstances and interests, could – not necessarily should – bring an action. This approach is neither purely subjective nor purely objective. The question becomes: ‘in light of his or her own circumstances and interests, at what point could the plaintiff reasonably have brought an action?’” (at para. 81) McLachlin, J. (as she then was), speaking for the majority in the same case, also espoused a variant of a “restrictive subjective/objective approach” that takes into account the plaintiff’s “important and substantial interests.” (at para. 38), adding that “purely tactical considerations have no place in this analysis.” (at para. 81) Time begins to run, she explained, when, “in light of the plaintiff’s particular situation, the bringing of a suit is reasonably possible, not when it would be ideal from the plaintiff’s perspective to do so.” (at para. 84)

[15] McLachlin, J. in Novak provided the following as examples of when a plaintiff may not reasonably be able to bring an action when viewed objectively but with regard to the plaintiff’s own situation:

(a)   the costs and strains of litigation would be overwhelming to him or her,

(b)   the possible damages recoverable would be minimal or speculative at best, or

(c)   other personal circumstances combined to make it unfeasible to initiate an action.

[10]           The evidence before me discloses no impediments to McKay that would have prevented him from commencing an action within the time prescribed by the Limitations Act.

The Court noted that some facts were in dispute, but such disputes did not need to be resolved in light of the clear failure by the Plaintiff to commence his claim within the limitation period. Accordingly, the Plaintiff’s claim was dismissed.