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Contract - Interpretation - Common Sense

. James Bay Resources Limited v. Mak Mera Nigeria Limited

In James Bay Resources Limited v. Mak Mera Nigeria Limited (Ont CA, 2025) the Ontario Court of Appeal allowed an appeal - here from orders that "Mak Mera to pay James Bay the amount of US$405,000, which she characterized as “advances”" and "damages for defamation in the amount of $200,000".

Here the court considers the Sattva 'common sense' contract interpretation doctrine:
[41] The governing “practical, common-sense approach” that the Supreme Court instructed in Sattva, at para. 47, should be applied to the interpretation of contracts, is as follows:
The overriding concern is to determine “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. [Citations omitted.]
. Niagara Falls Shopping Centre Inc. v. LAF Canada Company

In Niagara Falls Shopping Centre Inc. v. LAF Canada Company (Ont CA, 2023) the Court of Appeal set out principles of contractual interpretation generally:
[32] Before turning to those errors, it is useful to recall the Supreme Court’s guidance in Sattva for conducting contractual interpretation. A court’s overriding concern in contractual interpretation is “to determine ‘the intent of the parties and the scope of their understanding’”: at para. 47. Courts 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”: at para. 47. Contractual interpretation must be grounded in the text of the agreement, which expresses the “mutual and objective intentions of the parties”: at para. 57.
. J. Jenkins and Son Landscape Contractors Limited v. Iron Trio Inc.

In J. Jenkins and Son Landscape Contractors Limited v. Iron Trio Inc. (Ont Divisional Ct, 2025) the Divisional Court considered an appeal, here in a fact issue about the volume of a product delivered.

Here the court considers 'contractual interpretation', citing Sattva:
[45] The trial judge did not, in my view, rewrite the parties’ contract. He referred to the “black letter” approach to the interpretation of contract law having been replaced by a more contextualised and pragmatic approach. That view is consistent with the Supreme Court of Canada’s statement that the interpretation of contracts has evolved towards a practical, common-sense approach not dominated by technical rules of construction, and that the overriding concern is to determine "the intent of the parties and the scope of their understanding": Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 47.
. Ontario First Nations (2008) Limited Partnership v. Ontario Lottery and Gaming Corporation

In Ontario First Nations (2008) Limited Partnership v. Ontario Lottery and Gaming Corporation (Ont CA, 2021) the Court of Appeal considered the general interpretive approach applicable to contract issues, including the role of 'surrounding circumstances':
(b) Applicable principles of contractual interpretation

[46] The parties agree that the appeal judge correctly stated the applicable principles of contractual interpretation. Those principles were discussed in the Supreme Court’s unanimous decisions in Sattva, per Rothstein J., and more recently in Corner Brook, per Rowe J. They may be summarized as follows:
1. Courts should take “a practical, common-sense approach not dominated by technical rules of construction. The overriding concern is to determine ‘the intent of the parties and the scope of their understanding’”: Sattva, at para. 47 (citations omitted).

2. Courts must “read the contract as a whole, giving the words used their ordinary grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract”: Sattva, at para. 47; Corner Brook, at para. 20.

3. The surrounding circumstances should be considered in contractual interpretation. “[A]scertaining contractual intention can be difficult when looking at words on their own, because words do not have an immutable or absolute meaning”: Sattva, at para. 47. The meaning of words in a contract often derives from contextual factors, such as the purpose of the agreement and the nature of the relationship it creates: Sattva, at para. 48. A contract is not made in a vacuum and must be placed in its proper setting. Interpreting a commercial contract requires knowledge of the commercial purpose of the contract, based on “the genesis of the transaction, the background, the context, the market in which the parties are operating”: Sattva, at para. 47, citing Reardon Smith Line Ltd. v. Hansen-Tangen; Hansen-Tangen v. Sanko Steamship Co., [1976] 3 All E.R. 570 (U.K. H.L.), at p. 574, per Lord Wilberforce.

4. The nature of the evidence that may be considered as part of the surrounding circumstances will vary from case to case, but should include only “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”. That determination is inherently fact specific: Sattva, at paras. 55, 58 (citation omitted); Corner Brook, at para. 20.

5. The surrounding circumstances should never be allowed to overwhelm the words of the agreement. The surrounding circumstances are considered in order “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 interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract”. Courts cannot use the surrounding circumstances to deviate from the text of the contract to the point that the court “effectively creates a new agreement”: Sattva, at para. 57; Corner Brook, at para. 20.



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Last modified: 23-06-25
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