Contracts - Interpretation - Ambiguity. Jakab v. Clean Harbors Canada, Inc.
In Jakab v. Clean Harbors Canada, Inc. (Ont CA, 2023) the Court of Appeal considered principles of contractual interpretation, including the interaction between 'ambiguity' and 'contra proferentum':
C. THE RELEVANT LEGAL PRINCIPLES. Ha et al. v. Arista Homes
 Contractual interpretation is an exercise in discovering the “objective intentions of the parties as expressed in the words of the contract”: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53,  2 S.C.R. 633, a para. 57. This “fact-specific goal” requires a trial court 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”: Sattva, at para. 47; Ledcor, at para. 27. When a contract is read as a whole, it should be interpreted “in a manner that gives meaning to all of its terms and avoids an interpretation that would render one or more of its terms ineffective”: 2249778 Ontario Inc. v. Smith (Fratburger), 2014 ONCA 788, at para. 19; Meridian C C Intl Inc. v. 2745206 Ontario Inc., 2022 ONCA 12, at para. 7. The exercise of interpretation should also reflect the factual matrix underlying the contract and accord with sound commercial principles and good business sense, while avoiding commercially absurd interpretations: 2249778 Ontario Inc., at para. 19. However, “the [surrounding circumstances] should never be allowed to overwhelm the words of [the] agreement”: Sattva, at para. 57.
 If ambiguity in contract terms still remains after the above principles are applied, the rule of contra proferentem can be applied: Ledcor, at para. 51. Its role is to give effect to an ambiguous clause by preferring the reasonable interpretation that favours the party that did not have control over its drafting: Manulife Bank of Canada v. Conlin, 1996 CanLII 182 (SCC),  3 S.C.R. 415, at para. 9; 2249778 Ontario Inc., at para. 22.
 Moreover, the rule of contra proferentem applies in cases where contractual clauses are ambiguous: 2249778 Ontario Inc., at para. 22. A determination of ambiguity cannot be arrived at until after the material clause has been interpreted in the context of the contract as a whole. No ambiguity exists unless, after the principles of construction have been applied, more than one reasonable construction remains. ...
In Ha et al. v. Arista Homes (Div Ct, 2011) the Divisional Court considered some principles of contractual interpretation on the issue of ambiguity in a written contract:
Principles of Contractual Interpretation
 In my view, it is inappropriate to simply focus on a single provision in an agreement in isolation as the appellant urges the court to do in respect of the expression “Closing costs to be capped at $2,300.00 plus GST…”. I am required to consider the whole document along with the relationship between the parties and the business purpose of the Agreement, and not just the specific words in a provision. See Bell Canada v. The Plan Group (2009), 2009 ONCA 548 (CanLII), 96 O.R. (3d) 81, 2009 O.J. No. 2829 (C.A.) per Blair J.A., where he noted:
 In addition, as Doherty J.A. observed in Glimmer Resources Inc. v. Exall Resources Ltd., 1999 CanLII 1102 (ON CA),  O.J. No. 1357, 119 O.A.C. 78 (C.A.), at para. 17, each word in an agreement is not to be “placed under the interpretative microscope in isolation and given a meaning without regard to the entire document and the nature of the relationship created by the agreement”. Courts should not strain to dissect a written agreement into isolated components and then interpret them in a way that -- while apparently logical at one level -- does not make sense given the overall wording of the document and the relationship of the parties. I am also cautious about invoking the “plain meaning rule,” based on Professor Ruth Sullivan’s cogent argument in Sullivan on the Construction of Statutes, 5th ed. (Markham, Ont.: LexisNexis Canada, 2008) at pp. 353-58 and 12-13, that the court must avoid unconsciously invoking the rule, since doing so may conflate the important analytical steps of identifying the text to be interpreted, determining the relevant context, and testing for ambiguity. The words of any written instrument take their meaning from their context and those words, properly understood in context, can well reveal a latent ambiguity: Montréal (City) v. 2952-1366 Québec Inc., 2005 SCC 62 (CanLII),  3 S.C.R. 141,  S.C.J. No. 63 at para. 10 per McLachlin C.J.
 The basic law was most recently expressed in Salah v. Timothy’s Coffees of the World Inc. (2010), 2010 ONCA 673 (CanLII), 74 B.L.R. (4th) 161,  O.J. No. 4336 (C.A.) per Winkler C.J.O. at para. 16:
The basic principles of commercial contractual interpretation may be summarized as follows. When interpreting a contract, the court aims to determine the intentions of the parties in accordance with the language used in the written document and presumes that the parties have intended what they have said. The court construes the contract as a whole, in a manner that gives meaning to all of its terms, and avoids an interpretation that would render one or more of its terms ineffective. In interpreting the contract, the court must have regard to the objective evidence of the “factual matrix” or context underlying the negotiation of the contract, but not the subjective evidence of the intention of the parties. The court should interpret the contract so as to accord with sound commercial principles and good business sense, and avoid commercial absurdity. If the court finds that the contract is ambiguous, it may then resort to extrinsic evidence to clear up the ambiguity. Ryan J. noted in Delisle v. Bulman Group Ltd., 1991 CanLII 295 (BC SC),  4 W.W.R. 637,  B.C.J. No. 585, 1991 CarswellBC 54 (B.C.S.C) at para. 12 (Delisle cited to CarswellBC):
If, after examining the agreement itself in its factual matrix, including the particular words used in their immediate context and in the context of the agreement as a whole, there remain two reasonable alternative interpretations, then additional evidence may be admitted. This evidence includes evidence of the facts that led up to the making of the agreement, evidence of the circumstances as they existed at the time the agreement was made, and evidence of subsequent conduct of the parties to the agreement. The two existing reasonable interpretations may be the result of ambiguity arising from doubt, uncertainty or difficulty of construction. (Re C.N.R. and C.P. Ltd. (1979), 1978 CanLII 1975 (BC CA), 95 D.L.R. (3d) 242 (B.C.C.A.). See also the words of Gale C.J.O. in Leitch Gold Mines Ltd. et al. v. Texas Gulf Sulphur Co. (Incorporated) et al. (1969), 1968 CanLII 405 (ON SC), 3 D.L.R. (3d) 161,  1 O.R. 469,  O.J. No. 1336 (H.C.) at para. 232 (Leitch cited to O.J.):
Extrinsic evidence may be admitted to disclose a latent ambiguity, in either the language of the instrument or in its application to the facts, and also to resolve it, but it is to be noted that the evidence allowed in to clear up the ambiguity may be more extensive than that which reveals it. Thus, evidence of relevant surrounding circumstances can be accepted to ascertain the meaning of the document and may clarify the meaning by indirectly disclosing the intention of the parties.