Many everyday contracts contain a form of release, whether it is a gym membership where a person agrees not to file an action in the event they are injured or a multi-million-dollar settlement of a dispute – at its core, a release is an agreement between two parties in which the rights to potentially file a lawsuit are renounced by one or both of the parties.
When considering such clauses, Canadian courts have often referenced a 150-year-old interpretative principle called the Blackmore Rule,[1] which states that, “general words in a release are limited always to that thing or those things which were specifically in the contemplation of the parties at the time the release was given”.
In the recent decision of Corner Brook (City) v. Bailey 2021 SCC 29, the Supreme Court of Canada confirmed that no special rule of interpretation applies only to releases – a release is a contract, and therefore the general principles of contractual interpretation as laid down in Sattva Capital Corp. v. Creston Moly Corp. 2014 SCC 53 should apply.
The approach embodied in Sattva provides that, “contractual interpretation involves issues of mixed fact and law as it is an exercise in which the principles of contractual interpretation are applied to the words of the written contract, considered in light of the factual matrix.”
Background
The dispute in Corner Brook (City) v. Bailey, arose from a motor vehicle accident, where Mrs. Bailey struck an employee of the City (Mr. Temple) while he was busy conducting roadwork.
Mr. Temple filed an action against Mrs. Bailey, similarly, Mrs. Bailey (and her husband who owned the vehicle) commenced an action against the City for property damage to the vehicle and physical injury suffered by her.
Before proceeding to trial, Mrs. Bailey and the City managed to reach a settlement, which included Mrs. Bailey signing a broadly worded, full and final release, which stated:
. . . 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…]”
Years later, Mrs. Bailey brought a third-party claim against the City for contribution and indemnity in respect of the action brought against her by Mr. Temple. The City responded by bringing a summary trial application arguing that the release barred the third-party claim.
Mrs. Bailey’s position was that because the third-party claim was not specifically contemplated by the City and the Baileys (as per the Blackmore Rule) when they signed the release, it was not excluded.
Blackmore Rule
Justice Rowe, writing for the Court, spent considerable time going through the evolution of contract interpretation, specifically as it applies to release clauses, going back as far as 1861, where English courts had the following to say: [2]
“[i]t is a principle long sanctioned in Courts of equity, that a release cannot apply, or be intended to apply to circumstances of which a party had no knowledge at the time he executed it, and that if it is so general in its terms as to include matters never contemplated, the party will be entitled to relief”.
Release clauses are often drafted so generally that a literal interpretation “…could prevent the releasor from suing the releasee for any reason, forever.” In Canadian jurisprudence, this has led to an increasingly narrow application of the Blackmore Rule to the point where is adds nothing “…new to the regular repertoire of contractual interpretation principles in the wake of Sattva.”
To understand why this has happened, one needs only look at the rationale for these interpretive maxims that developed under the common law, particularly in the Court of Equity. The determination of legal rights and obligations under a written contract was considered a question of law, the rationale being that in 18th and 19th century England, there was widespread illiteracy, which was of particular concern in civil jury trials. This necessitated the courts to develop rules to ensure that interpretive duty rested with the literate judge, who could be assured of being able to read the contract. As Justice Rowe summarized, “The jurisprudential concerns that gave rise to the rule in Blackmore no longer exist. It is no longer needed. It has outlived its usefulness and should no longer be referred to.”
The Blackmore Rule Has Been Overtaken by Sattva
Sattva directs courts 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 interpretation of contracts is accordingly a mixed question of fact and law.
While an investigation of the surrounding facts will be considered in interpreting the terms of a contract, Justice Rothstein provides some words of caution – the facts must never be allowed to overwhelm the words of that agreement. The purpose of an examination of the factual matrix, “… is to deepen a decision-maker’s understanding of the mutual and objective intentions of the parties as expressed in the words of the contract.”
The specific text of the contract remains the basis when interpreting a provision, which must be read in light of the entire contract and the surrounding circumstances. The Court in Sattva goes on to clarify what is meant by surrounding circumstances: “…consist only of objective evidence of the background facts at the time of the execution of the contract…, that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting.”
Surrounding evidence, as outlined in Sattva, would, on a plain reading, include party-to-party correspondence in relation to the settlement, which seems to contradict the longstanding, traditional rule that evidence of negotiations is inadmissible when interpreting a contract. Justice Rowe raised this observation, but ultimately left his own question unanswered, stating, “I leave for another day the question of whether, and if so, in what circumstances, negotiations will be admissible in interpreting a contract. That issue needs to await a case where it has been fully argued and is necessary in order to decide the appeal.”
The Court, when considering the factual matrix (including party correspondence), found that Mrs. Bailey was aware of the claim filed against her by Mr. Temple at the time she entered into the settlement with the City, and consequently it was within her contemplation at the time that she may need to include the City as a third-party to indemnify her.
The court ultimately agreed that the release covered the third-party claim against the City, as was held by the Application Judge.
Things to Keep in Mind When Drafting a Release Clause
Lastly, what strategies can be used to draft a valid and enforceable release? This is the difficult part, as each release will be determined on the specific wording and the surrounding evidence to understand what exactly the parties had intended.
When preparing a release, parties should be as specific as possible by referencing identifiable events or circumstances and tying release conditions to those events. The broader the wording of the release, potentially the narrower the interpretation by the courts. This does not preclude a party from using terms such as “all claims” or “foreseen or unforeseen” in relation to a specific event, as it is impossible and unreasonable to expect a party to provide an exhaustive list of all the claims that could potentially arise.
[1] London and South Western Railway v. Blackmore (1870), L.R. 4 H.L. 610.
[2] Lyall v. Edwards (1861), 6 H. & N. 337, 158 E.R. 139, at p. 143, per Pollock C.B; Para. 22