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Contracts - Interpretation

Martenfeld v Collins Barrow Toronto LLP (Ont CA, 2014)

In this case the Court of Appeal characterized the basic principles of interpretation of contracts as follows:
[39] In determining the legal rights and obligations of the parties under a written contract, the primary task of a reviewing court is to ascertain the objective intentions of the parties and the scope of their understanding regarding the rights and obligations at issue. Recently, in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 (CanLII), 2014 SCC 53, the Supreme Court, at para. 47, reiterated the well-established principle that courts are to undertake this task with a view to “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.”

[40] This interpretive approach governs the construction of the Partnership Agreement. Under this approach, while the circumstances surrounding the formation of the disputed contract are relevant as an interpretive aid, they cannot overtake the written words used by the parties. As the Sattva court explained, at para. 57, “[t]he interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract”.

[41] The Sattva court also held, at para. 50, 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.” Thus, questions of contractual interpretation generally attract a deferential standard of review: Sattva at para. 52. Further, although it may be possible “to identify an extricable question of law from within what was initially characterized as a question of mixed fact and law”, “courts should be cautious in identifying extricable questions of law in disputes over contractual interpretation” since, among other considerations, “the goal of contractual interpretation, to ascertain the objective intentions of the parties, is inherently fact specific”: Sattva at paras. 53-55.


[75] The trial judge referred specifically to Dumbrell and Ventas, as well as Eli Lilly & Co. v. Novopharm Ltd., 1998 CanLII 791 (SCC), [1998] 2 S.C.R. 129 and stated, at para. 37:
[T]he goal of interpretation of contracts is to determine the intention of the parties with reference to the words used in drafting the document, possibly read in light of the surrounding circumstances prevalent at the time. Evidence of one party’s subjective intention is irrelevant. Extrinsic evidence need not be considered at all when the document is clear and unambiguous on its face. It should be presumed that the parties intended the legal consequences of their words. This makes it possible to interpret a plainly-worded document in accordance with the true contractual intent of the parties and not by the intent they ascribe to it with hindsight once differences have arisen.

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