The interpretation of releases and the Supreme Court of Canada decision in Corner Brook (City) v Bailey

November 2, 2021 | Emma L. Johnston, Mark Puszczak

In its recent decision in Corner Brook (City) v Bailey,[i] the Supreme Court of Canada discussed the interpretation of releases and, more importantly, the proper approach for determining the scope of each specific release. Although decided in the context of a motor vehicle accident, the analysis set out in the unanimous decision has implications for the interpretation of releases in a wide variety of contexts including the construction sphere.

In simple terms, a “release” is a contractual document in the context of a dispute, which provides for the relinquishment, in whole or in part, of a right or claim.[ii] In most cases the provision of a release is in return for the settlement of the dispute. Releases typically contain wording similar to the below:

… any and all claims between the Parties relating to or arising out of the Dispute. … (broad, but confined to a particular defined matter, subject to further constraint by how the matter is defined)

…any and all claims concerning any and all services… (broader, encompassing the entirety of work/services provided)

…all disputes, manner of actions, causes of action, suits, debts, duties, accounts, bonds, covenants, contracts, letters of intent, losses or inquiry of any kind or nature, liabilities, claims and demands whatsoever in law and in equity that they now have, or in the future may have, in respect of, but not limited to [the Matter/Dispute between the parties] … (though limited to a particular issue, potentially broad enough to encompass all future claims, regardless of how they arise)

It is not uncommon that parties to a construction dispute will be asked to sign expansive standard form releases prior to receiving payment, even where the only issue in dispute is delayed payments. The Supreme Court of Canada’s decision in Corner Brook emphasizes that doing so (i) could easily impact rights in unrelated and uncontemplated litigation, and (ii) that whatever their position on a project a person would be well served by obtaining legal advice prior to signing a release to ensure the release signed is properly tailored to their specific position, and only releases the intended contemplated claims.

i. Background

In Corner Brook, the respondent struck with a motor vehicle an employee of the City of Corner Brook, Newfoundland  (the “City”), who was performing road work. The employee sued the respondent for injuries sustained in the accident and, in a separate action, the respondent and her husband sued the City for property damage to the car and for physical injury suffered by the respondent. The respondent and her husband reached a settlement with the City, released the City from liability relating to the accident, and discontinued their action.

Years later, the respondent brought a third party claim against the City for contribution or indemnity in the action brought against her by the employee. The City, in turn, brought a summary trial application on the basis that the release barred the third party claim. The respondent’s position was that the release did not bar the City from liability because the third party claim was not specifically contemplated by the parties when they signed the release.

ii. Lower Court Decisions

The application judge concluded that the release barred the respondent’s third party claim against the City and stayed the claim. However, on appeal the Newfoundland and Labrador Court of Appeal unanimously allowed the appeal and reinstated the third party claim.

iii. Supreme Court Decision

In a unanimous decision delivered by Rowe J, the Supreme Court of Canada held that the appeal should be allowed and the order of the application judge reinstated.

Of particular significance in the result reached by the Supreme Court of Canada is its analysis regarding the approach to the interpretation of releases in Canadian law. The relevant parts of the decision in this respect are set out below.

a) The “Blackmore Rule” has been overtaken by Sattva

Discussing the interpretation of releases, Rowe J first looked to the “Blackmore Rule” which has traditionally governed this subject in commonwealth jurisdictions. As he describes, the Blackmore Rule involves a particular approach to the interpretation of releases, which requires that they can only apply to matters within the parties’ contemplation at the time of execution:[iii]

The general words in a release are limited always to that thing or those things which were specially in the contemplation of the parties at the time when the release was given. But a dispute that had not emerged, or a question which had not at all arisen, cannot be considered as bound and concluded by the anticipatory words of a general release.

…  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.

Rowe J then went on to note that the Blackmore Rule, though adopted in Canada, has been given a narrow interpretation in the following ways:[iv]

  1. it does not allow consideration of the subjective intention of the parties; and
  2. it does not preclude parties from releasing unknown claims.

As a result of this narrow interpretive tendency, Rowe J found that the Blackmore Rule has, in effect, been subsumed by the modern approach to contractual interpretation as set out in the Supreme Court of Canada decision in Creston Moly Corp v Sattva Capital[v]. As a result, Rowe J found that:

  • the Blackmore Rule no longer adds to or deviates from the general principles of interpretation that apply to all contracts;[vi] and
  • the Blackmore Rule and the jurisprudence pursuant to it should no longer govern release interpretation, and there is no principled reason to have a special rule applicable only to releases.[vii]

b) Judicial Tendency Regarding the Interpretation of Releases

In light of the approach to contractual interpretation set out in Sattva, Rowe J observed that tension may arise between the ordinary meaning of the words in releases and their surrounding circumstances due to the fact that:[viii]

  1. releases, by drafting convention, are often expressed in the “broadest possible words” and, as a result, a general release if interpreted literally “…could prevent the releasor from suing the releasee for any reason, forever….”; and
  2. parties to a release are often trying to account for risks that at the time of contract are unknown, which carries with it an inherent imprecision that can give rise to disagreement as to what was intended.

As Rowe J points out, 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.”[ix]

Since it is possible for a release to encompass unknown claims, Rowe J found that a sensible approach to the drafting of releases is one where the drafter of a release includes wording that makes clear whether the release will cover unknown claims and whether the claims must be related to a particular area or subject matter. He further added the following:

  • releases that are narrowed to a particular time frame or subject matter are less likely to give rise to tension between the words and what the surrounding circumstances indicate the parties objectively intended;[x] and
  • in every case, the ultimate question is whether the claim is the type of claim to which the release is directed. As Rowe J points out, this will depend on the wording and surrounding circumstances of the release in each case.[xi]

Takeaways

In light of the guidance provided by the Supreme Court of Canada’s decision in Corner Brook, parties to construction disputes ought to consider the following when drafting or signing releases:

a) When Drafting:

i. A broadly worded release can be given effect but will be constrained by the wording used (i.e. if reference is made to claims arising out of a specific project or scope of work).

ii. The interpretive tension that can arise in broadly worded releases can be eased by express reference to unknown claims (if they are intended to be included) and express contemplation of whether any such claims must be related to a particular time frame or subject matter.

b) When Signing:

i. An appropriately worded release can release unknown future claims.

ii. If the dispute giving rise to the release only pertains to a particular matter or issue, the releasor can limit its risk with respect to forfeiture of future claims by insisting on language in the release to include only the matter(s) in dispute.

iii. For example, where the releasor is a contractor involved in a payment dispute, they should be careful in signing broadly worded releases requested as part of the dispute as these may be taken to include future or existing negligence claims that are not contemplated as part of the settlement.


[i] 2021 SCC 29 [Corner Brook].

[ii] see, for example AIG Insurance Co of Canada v Canjam Trading Ltd, 2015 ONSC 149 at para 20.

[iii] Corner Brook, supra note 1 at paras 21 – 22.

[iv] Ibid at paras 24 – 26.

[v] 2014 SCC 53 [Sattva].

[vi] Corner Brook, supra note 1 at para 28.

[vii] Ibid at para 33.

[viii] Ibid at paras 35 – 37.

[ix] Ibid at para 38.

[x] Ibid at para 41.

[xi] Ibid at para 43.

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