On July 23, 2021, the Supreme Court of Canada rendered a unanimous decision in Corner Brook (City) v. Bailey – a case which offers guidance on the drafting and interpretation of releases. In overturning a decision of the Court of Appeal for Newfoundland and Labrador and reinstating the decision of the applications judge, Justice Malcolm Rowe, writing for the Court, set out a historical analysis of the principles of contractual interpretation. While the case law of the past century has witnessed a pendulum swing away from literal interpretation towards a contextual approach, the treatment of releases has been handled with pronounced reticence given the tendency to draft clauses in the broadest possible terms. As Justice Rowe cautions, “[a] general release, if interpreted literally, could prevent the releasor from suing the releasee for any reason, forever.”
In observing that the judicial tendency to interpret releases narrowly is more properly attributable to the characteristics of releases themselves rather than due to any special rules, the Court confirmed that the interpretation of releases ought to be governed by the general contextual approach to contractual interpretation endorsed by the Supreme Court of Canada in an earlier landmark decision (Sattva Capital Corp. v. Creston Moly Corp). Accordingly, context can be used to resolve the dissonance between the literal terms of the agreement and the objective intent of the parties. In addition to offering clarity on the principles of contractual interpretation, Corner Brook also presents sage insights on legal drafting and hints towards the potential elimination of the common law rule which prevents pre-contractual negotiations from being considered in exercises of contractual interpretation.
Corner Brook also bears particular significance in Quebec where a recent decision of the Quebec Court of Appeal has endorsed a parallel approach in the analysis of alleged undue duress in a commercially negotiated release. While courts have exhibited a general hesitancy to set aside transactions which were negotiated by sophisticated parties on the basis of undue duress, recent developments suggest a renewed openness to rely on contextual factors such as testimony from in-house counsel to make findings of bad faith or unlawful pressure.
On March 3, 2009, a city employee named David Temple was struck by a vehicle driven by Mary Bailey while performing road work in Corner Brook, Newfoundland. Shortly thereafter, Bailey filed a lawsuit against the City of Corner Brook for injuries that she sustained in the accident. Temple meanwhile filed a separate action against Bailey for injuries that he sustained in the accident. On August 26, 2011, Bailey settled her lawsuit out of court for the sum of $7500. In exchange for the settlement amount, Bailey signed a release which 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] . . . .
In 2016, Bailey commenced a third-party claim against Corner Brook claiming that the city owed her a contribution if she was found liable to Temple. The city, for its part, argued that the release signed by Bailey in 2011 barred this third-party claim. Bailey, in turn, argued that the release did not capture the third-party claim because it was not specifically contemplated when the release was signed.
The Supreme Court of Newfoundland and Labrador held that the release barred Bailey’s third-party claim. Noting that the third-party claim was captured by the words of the release alone, the applications judge furthered his analysis, finding that the third-party claim was also in the contemplation of the parties when the release was signed.
The Court of Appeal of Newfoundland and Labrador subsequently unanimously allowed the appeal, holding that the broad phrases in the release should be evaluated in conjunction with the more specific references to Bailey’s initial action. Because there was no explicit reference to the action which had already been initiated by Temple or to any other future third party action, the Court of Appeal concluded that the release ought to be interpreted as a release only of the claims in Bailey’s initial action.
The Supreme Court of Canada began its analysis by considering certain remarks made by the applications judge and by the Court of Appeal concerning the Blackmore Rule – a special common law rule regarding releases which was intended to supersede the general rules of contract law. The Blackmore Rule was established pursuant to a decision of the House of Lords rendered in 1870 which stated that parties to a release cannot be barred from pursuing a claim relating to a dispute that was not in the contemplation of the parties at the time that the release was signed. While the Blackmore Rule played a significant role throughout the nineteenth century seeing as it opened the door to the analysis of contextual factors in an era otherwise characterized by literal “black letter” interpretation, the Supreme Court held that “[it] has outlived its usefulness and should no longer be referred to”.
Rather, the current framework governing contractual interpretation as set out by the Supreme Court in Sattva renders the Blackmore Rule superfluous and eliminates the need for any other special rule specific to releases. According to Sattva, the overriding concern in contractual interpretation is determining the intent of the parties and the scope of their understanding. To do so, “a decision-maker must 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.” While Sattva marks an acceptance of contextual factors in contractual interpretation, it also cautions that surrounding circumstances will never be permitted to overwhelm the words of the agreement. The resulting effect is that context can be used to resolve the tension between the words of an agreement and the true intent of the parties, but cannot go so far as to change the written agreement itself – a principle which now unequivocally also applies to releases.
In applying these principles, the Supreme Court concluded that the release barred Bailey’s third-party claim, in part, because the release contained the phrase, “claims of any kind or nature whatsoever arising out of or relating to the accident” (emphasis added). To the Court, Temple’s damages which were sustained during the accident fell squarely within what was contemplated by the release. As Justice Rowe notes, “[i]f 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.” In its contextual analysis, the Court also concluded that the surrounding circumstances revealed that the parties had knowledge of all of the facts underlying the third party claim when they executed the release.
Developments and lessons from Quebec
Although rendered in the common law context, the Corner Brook decision carries significance in Quebec when read in conjuncture with a 2019 decision of the Quebec Court of Appeal which held that a commercially negotiated release may be annulled if it was unfairly obtained. In Hydro-Québec v. Construction Polaris Inc., a unanimous court upheld a decision of the Quebec Superior Court which annulled a transaction and the release that it contained on the basis that it was obtained through fear and undue duress. Briefly, Polaris was engaged by Hydro-Québec (“HQ”) to build a road leading to a HQ facility. Facing cost overruns and a high risk of insolvency, Polaris initiated a claim of $24.7M against HQ and requested an immediate payment of $4M to remain solvent. At a subsequent meeting between the parties, HQ demanded that Polaris accept a $10M one-time payment in exchange for a release against all current and future claims, giving the latter two hours to accept or reject its offer. Polaris, feeling that it had no other choice, ‘accepted’ HQ’s offer and shortly thereafter, initiated a claim in damages and to annul the transaction.
The trial judge held that HQ acted in bad faith by exploiting Polaris’ precarious financial situation and annulled the transaction. On appeal, HQ argued that the trial judge erred in interpreting the release, claiming that the release ought to have barred Polaris’ claim for damages. The Court of Appeal held that the trial judge was justified in relying on the testimony of HQ’s in-house counsel which served to confirm the scope of the release. The trial judge was therefore also justified in concluding that the scope of the release demonstrated the “totally disproportionate nature of the benefits derived by each party”. Finding no further errors, the Court of Appeal rejected the appeal and confirmed the annulment of the release.
More broadly, while Corner Brook is generally consistent with Quebec’s approach to contractual interpretation, there are several points of contrast which nuance the Court’s conclusions. First, the Quebec Civil Code sets out a specific regime governing the interpretation of contracts. This regime notably provides that the “common intention of the parties rather than adherence to the literal meaning of the words shall be sought in interpreting a contract” and that “the nature of the contract, the circumstances in which it was formed, the interpretation which has already been given to it by the parties or which it may have received, and usage are all taken into account”. In practice, Quebec’s evidentiary rules will give precedence to the written terms of an agreement when the parties’ “common intention” is sufficiently clear and will not permit parties to adduce proof by testimony to contradict or vary these terms absent a “commencement of a proof” – a piece of evidence which renders the alleged fact plausible and establishes the contract’s ambiguity. However, when the parties’ common intention is not clear and when interpretation is necessary, Quebec courts place significant emphasis on the contextual factors which assist in determining the parties’ will.
The process of determining the parties’ common intention involves using these contextual factors to ascertain the “real will” of the parties, rather than determining an “objective intent”. This principle has been repeatedly endorsed in jurisprudence from Quebec but perhaps most notably in Sobeys Québec inc. c. Coopérative des consommateurs de Ste-Foy – a 2005 decision of the Quebec Court of Appeal. In Sobeys, Justice Marie-France Bich, writing for the Court, held that “[contractual interpretation] will then consist in seeking, through but also beyond the declared will, the real will of the parties, that is to say, their true common intention, an intention which must of course be proved” (translation). This exercise therefore involves a significant analysis of what was subjectivity intended by the parties and marks a departure from Corner Brook’s common law focus on “objective intent”. The result of this divergence is that the ‘end goal’ of contractual interpretation will be different under Quebec law and will necessarily involve an analysis of more subjective elements. However, as Sobeys cautions, in situations in which there is no common intention to discern, the court will effectively attribute a common intention – an exercise which is more ‘objective’ seeing as it seeks to infer intent from what is consistent with the rest of the contract.
Drafting of releases: striking the balance between ‘broad’ and ‘clear’
As alluded to in the introduction, the tension between the literal words of a contract and the objective intent of the parties is more likely to emerge in the context of releases, which are generally intended to be drafted as broadly as possible to definitively eliminate the risks associated with future lawsuits. As illustrated in Corner Brook, broad terms can be effectively used to capture unknown future claims without needing to resort to exhaustively listing every type of claim. While broad terms can be effective, they must also be sufficiently clear, and where possible, should include wording to indicate whether the contemplated claims must arise from a particular event or subject matter. This lesson is equally relevant to contracts more generally, where, despite a shift towards contextual interpretation, the use of clear wording can help insulate against the risks associated with a contextual analysis of objective intent in allegedly ambiguous contracts.
Pre-contractual negotiations: adding an ingredient to contractual interpretation?
Corner Brook also foreshadows a potential future development in the contextual approach to contractual interpretation. Both lower courts had commented on the parties’ pre-contractual negotiations, identifying them as a potential indication of the parties’ objective intent. The Supreme Court noted that “there is a longstanding, traditional rule that evidence of negotiations is inadmissible when interpreting a contract” but also highlighted that “this rule “sits uneasily” next to the approach from Sattva that directs courts to consider the surrounding circumstances”. While Corner Brook did not substantively address this question, it left the door open for future cases to do so. It is therefore advisable to continue keeping accurate records of settlement negotiations but to ultimately focus on ensuring that the language of the release faithfully and clearly reflects the intention of the parties.
Undue duress, bad faith, and “common intention” – guiding principles from Quebec
A recent decision rendered by the Quebec Court of Appeal adds another dimension to contextual contractual interpretation. Even in cases where the language of a release is clear, parties who have agreed to such releases and who were subject to undue pressure can move to have them annulled in cases where the bad faith of the releasee can be demonstrated. Accordingly, contractual interpretation can be stretched to apply beyond the written terms of the agreement and can be used to impugn a contract based on the conduct of the parties during negotiations. While courts will likely remain hesitant to annul releases between sophisticated parties because of undue duress, case law from Quebec emphasizes the importance of conducting negotiations in good faith to mitigate against this risk. Finally, counsel ought to be prudent when handling contracts governed by Quebec law given the specific nuances to contractual interpretation and applicable evidentiary rules which are set out in the Quebec Civil Code.
Corner Brook heralds the unequivocal acceptance of Canada’s increasingly context-driven approach to contractual analysis and stands for the proposition that releases are not subject to any special rules of interpretation. It likewise offers valuable insights on how to draft releases and hints towards future developments regarding the status of pre-contractual negotiations in contractual interpretation. Parties should thus take steps to be aware of the breadth of releases and their possible effects on future and/or unknown claims. Similarly, parties who wish to effectively mitigate against the risk of such potential claims should ensure that appropriate wording is used to protect these interests.
 Corner Brook (City) v. Bailey, 2021 SCC 29 at para 36 [Corner Brook].
 Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 [Sattva].
 London and South Western Railway Co. v. Blackmore (1870), L.R. 4 H.L. 610.
 Corner Brook, supra note 1 at para 3.
 Sattva, supra note 2 at para 47.
 Ibid., at para 37.
 Corner Brook, supra note 1 at 51.
 Hydro-Québec c. Construction Polaris inc., 2019 QCCA 990 at para 20 [Polaris].
 Ibid., at para 20.
 1425 C.c.Q.
 1426 C.c.Q.
 2863-2865 C.c.Q.
 Sobeys Québec inc. c. Coopérative des consommateurs de Ste-Foy, 2005 QCCA 1172 [Sobeys].
 Ibid., at para 50.
 Ibid., at para 60.
 Corner Brook, supra note 1 at para 56.