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Contract - Interpretation - General (post-2020). Grasshopper Solar Corporation v. Palmer
In Grasshopper Solar Corporation v. Palmer (Ont CA, 2023) the Court of Appeal considered a novel commercial tenancy arrangement whereby the respondent tenant rented residential rooftops for the purpose of generating solar energy and feeding it back into the electrical grid for profit.
In this quote the court considered issues of contractual interpretation (here, a lease):[20] The motion judge’s interpretation of the lease is entitled to deference: Deslaurier Custom Cabinets Inc. v. 1728106 Ontario Inc., 2017 ONCA 293, 135 O.R. (3d) 241, at para. 49, leave to appeal to S.C.C. refused, 37039 (October 19, 2017); and Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at paras. 50, 52.
[21] The motion judge committed no error in turning first to the written terms of the agreement and applying them to the circumstances of this case: Lloyds Syndicate 1221 (Millennium Syndicate) v. Coventree Inc., 2012 ONCA 341, 291 O.A.C. 178, at para. 16, leave to appeal refused, [2012] S.C.C.A. No. 276. Moreover, while it is true that the lease was offered on a take-it-or-leave-it basis, this neither changes our understanding of the decision below nor rises to the level of an impermissible power imbalance between the parties.
[22] Accordingly, this argument cannot prevail. . Prism Resources Inc. v. Detour Gold Corporation
In Prism Resources Inc. v. Detour Gold Corporation (Ont CA, 2022) the Court of Appeal considered basics of contractual interpretation:[15] The parties agree that the Supreme Court’s decision in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, sets out the governing principles of contractual interpretation. The relevant principles are also addressed in this court’s decisions in Weyerhauser Co. v. Ontario (Attorney General), 2017 ONCA 1007, 77 B.L.R. (5th) 175, at para. 65, per Brown J.A., rev’d on other grounds, Resolute FP Canada Inc. v. Ontario (Attorney General), 2019 SCC 60, 444 D.L.R. (4th) 77; Ontario First Nations (2008) Limited Partnership v. Ontario Lottery and Gaming Corp., 2021 ONCA 592, at para. 46, per Jamal J.A.; Ventas, Inc. v. Sunrise Senior Living Real Estate Investment Trust, 2007 ONCA 205, 85 O.R. (3d) 254, at para. 24, per Blair J.A.; and Dumbrell v. The Regional Group of Companies Inc., 2007 ONCA 59, 85 O.R. (3d) 616, at paras. 52-56, per Doherty J.A.
[16] These principles were conveniently summarized by Brown J.A. in Weyerhauser, at para. 65. A judge interpreting a contract should:i) determine the intention of the parties in accordance with the language they have used in the written document, based upon the “cardinal presumption” that they have intended what they have said;
ii) read the text of the written agreement as a whole, giving the words used their ordinary and grammatical meaning, 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;
iii) read the contract in the context of the surrounding circumstances known to the parties at the time of the formation of the contract. The surrounding circumstances, or factual matrix, include facts that were known or reasonably capable of being known by the parties when they entered into the written agreement, such as facts concerning the genesis of the agreement, its purpose, and the commercial context in which the agreement was made. However, the factual matrix cannot include evidence about the subjective intention of the parties; and
iv) read the text in a fashion that accords with sound commercial principles and good business sense, avoiding a commercially absurd result, objectively assessed. [17] Brown J.A. added several observations about the proper consideration of the “factual matrix” by a judge interpreting a contract, at paras. 66-68, to the effect that it comprises, as stated in Sattva at para. 58, 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”. The “surrounding circumstances”, Sattva noted, at para. 57, “must never be allowed to overwhelm the words of that agreement” and cannot be used “to deviate from the text such that the court effectively creates a new agreement”. . 2651171 Ontario Inc. v. Brey
In 2651171 Ontario Inc. v. Brey (Ont CA, 2022) the Court of Appeal considered 'as a whole' contractual interpretation:[16] The motion judge properly instructed herself that, as this court directed in Ventas, Inc. v. Sunrise Senior Living Real Estate Investment Trust, 2007 ONCA 205, 85 O.R. (3d) 254, at para. 24, a commercial contract should be interpreted “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”. . J.P. Thomson Architects Ltd. v. Greater Essex County District School Board
In J.P. Thomson Architects Ltd. v. Greater Essex County District School Board (Ont CA, 2025) the Ontario Court of Appeal allowed an appeal, here from "the application judge’s denial of an order appointing an arbitrator pursuant to a dispute resolution clause in its contract with the respondent, Greater Essex County District School Board".
Here the court considers basic contract interpretation doctrine:[18] Ordinary principles of contractual interpretation apply in interpreting an arbitration clause. The language of the clause must “be read in the context of the agreement as a whole, and its intended meaning gleaned within that context”: Mantini v. Smith Lyons LLP (2003), 2003 CanLII 20875 (ON CA), 64 O.R. (3d) 505 (C.A.), at para. 21, leave to appeal refused, [2003] S.C.C.A. No. 344; see also Huras v. Primerica Financial Services Ltd. (2001), 2001 CanLII 17321 (ON CA), 55 O.R. (3d) 449 (C.A.), at paras. 12-14. The chosen interpretation should be consistent with sound commercial principles and good business sense: see Geoff R. Hall, Canadian Contractual Interpretation Law, 4th ed. (Toronto: LexisNexis Canada, 2020), s. 2.6.1 and caselaw cited therein. . BNSF Railway Company v. Greater Vancouver Sewerage and Drainage District
In BNSF Railway Company v. Greater Vancouver Sewerage and Drainage District (Fed CA, 2025) the Federal Court of Appeal dismissed an appeal [under the Canada Transportation Act, s.41(1)], here from a CTA decision that "found the proposed new sewage pipe to be a suitable utility crossing and authorized the District to construct and maintain it at the District’s cost".
The court considered contractual interpretation, here in the context of an allegedly-applicable 1959 contract between a railway and a sewage authority where appeal jurisdiction only applied to "question of law or jurisdiction":I. This Court Has Jurisdiction to Decide the Appeal
[9] An appeal of an Agency decision to this Court is available with leave, but only on a question of law or jurisdiction: Canada Transportation Act, s. 41(1). On April 6, 2023, this Court granted BNSF leave to appeal. Nonetheless, when hearing the appeal, we must be satisfied the appeal engages a question of law or jurisdiction; if it does not, we must dismiss it: Canadian National Railway Company v. Emerson Milling Inc., 2017 FCA 79 at para. 56.
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V. The Agency Made an Error of Law
[25] When interpreting a contract, "“[t]he overriding concern is to determine ‘the intent of the parties and the scope of their understanding’”": Sattva at para. 47, citing Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21 at para. 27 and Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4 at paras. 64-65.
[26] To do so, one "“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”": Sattva at para. 47. The surrounding circumstances are those "“facts known or facts that reasonably ought to have been known to both parties at or before the date of contracting”" based on "“objective evidence of the background facts at the time of the execution of the contract”": Sattva at paras. 58, 60, citing King v. Operating Engineers Training, 2011 MBCA 80 at paras. 66, 70; see also S.A. v. Metro Vancouver Housing Corp., 2019 SCC 4 at para. 30.
[27] However, contractual interpretation must always be grounded in the contract’s text, not the surrounding circumstances: Sattva at para. 57; see also ING Bank N.V. v. Canpotex Shipping Services Limited, 2017 FCA 47 at paras. 105-106, leave to appeal to SCC refused, 37553 (21 September 2017). The text predominates. . ABDOU v. Governing Council of UOT
In ABDOU v. Governing Council of UOT (Div Court, 2023) the Divisional Court considered basic contractual interpretation law:[31] In Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 SCR 633, the Supreme Court of Canada stated that an appeal involving the interpretation of a contract is a question of mixed fact and law subject to deferential review on appeal. This was later clarified though, in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 SCR 23, at paras. 4, 24, where the court held that if the contract to be reviewed is a standard form contract, this interpretation is better characterized as a question of law subject to correctness review.
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[41] When reviewing the alleged errors of the Deputy Judge, the efforts Mr. Abdou made afterwards to obtain a refund are not relevant to the issue of general damages. I am bound by the rules of contract interpretation which have recently been summarized as follows:a) Contractual interpretation is an exercise in discovering the objective intentions of the parties as expressed in the words of the contract;
b) The court is required 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;
c) 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;
d) 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; and
e) If ambiguity in contract terms still remains after the above principles are applied, the rule of contra proferentem can be applied. See Jakab v. Clean Harbors Canada Inc., 2023 ONCA 377, at paras. 11-12 (citations omitted).
[42] As can be seen, evidence of what happened afterwards cannot inform my interpretation of the Calendar and the Refund Policy. Indeed, the factual matrix is less relevant in a standard form contract because the parties do not negotiate terms and the contract is put to the receiving party as a take it or leave it proposition: Ledcor at para. 28; Trillium Mutual Insurance Company v. Emond, 2023 ONCA 729, at para. 38.
[43] The following can constitute a legal error in contract interpretation that justifies appellant intervention:a) A failure to consider the contract as a whole, by focussing on one provision without giving proper consideration to other relevant provisions; and
b) A failure to apply the appropriate principles of contractual interpretation, especially when it results in an interpretation inconsistent with the wording of the relevant provisions.
See Fuller v Aphira Inc., 2020 ONCA 403, at paras. 49-50. . 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
[11] 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, [2014] 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.
[12] 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), [1996] 3 S.C.R. 415, at para. 9; 2249778 Ontario Inc., at para. 22.
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[20] 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. ... . Corporation of the Municipality of Strathroy-Caradoc v Corporation of the Township of Adelaide Metcalfe
In Corporation of the Municipality of Strathroy-Caradoc v Corporation of the Township of Adelaide Metcalfe (Div Court, 2023) the Divisional Court considered an appeal from an OLT decision [brought with leave under Ontario Land Tribunal Act, s. 24], the issue being the OLT's jurisdiction to resolve a contractual dispute between two neighbouring municipalities.
In these quotes, the court cites applicable contractual interpretation principles (primarily Sattva):The Principles of Contract Interpretation
[27] The Supreme Court of Canada has observed that the courts’ approach to contract interpretation “has evolved towards a practical, common-sense approach not dominated by technical rules of construction”: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 47. The primary object of contract interpretation is to give effect to the intention of the parties at the time of contract formation: Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 71, at para. 45. The “intent of the parties and the scope of their understanding,” is determined by reading a 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 Capital, at para. 47.
[28] While contextual factors are relevant to the interpretation of a contract, “the interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract.” Sattva Capital, at para. 57. In Weyerhaeuser Company Limited v Ontario (Attorney General), 2017 ONCA 1007, at para. 76, the Court of Appeal described that “the plain meaning of the words in a contract is the logical place to start the contractual interpretation exercise.”
[29] Similarly, in The Plan Group v. Bell Canada, 2009 ONCA 548, at para. 37, the Court of Appeal held that a commercial contract should be interpreted: (i) as a whole, by giving meaning to all the terms of a contract to avoid an interpretation that would render any term ineffective; (ii) by determining the intention of the parties with reference to the words used in the contract; (iii) with regard to objective evidence of the factual matrix underlying the negotiation of the contract, but without reference to subjective intention; and (iv) to the extent that there is any ambiguity in the contract, in a fashion that accords with sound commercial principles and good business sense and that avoids a commercial absurdity. See also Ventas, Inc. v. Sunrise Senior Living Real Estate Investment Trust, 2007 ONCA 205, at para. 24.
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[35] Moreover, the contract should be read as a whole. In Thunder Bay (City) v. Canadian National Railway Company, 2018 ONCA 517, at para. 46, the Court of Appeal explained that it is an error of law to interpret a contract in such a way that fails to give effect to all of a contract’s terms or that renders one or more of the contract’s terms ineffective.
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[38] In Sattva Capital, at para. 57, the Supreme Court of Canada stated that surrounding circumstances must never be used to overwhelm the words of the agreement and that “the interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract.” Surrounding circumstances “should 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.”: Sattva Capital, at para. 58. . Dunbar et al v. Ontario Gaming West GTA Limited Partnership
In Dunbar et al v. Ontario Gaming West GTA Limited Partnership (Div Ct, 2022) the Divisional Court quoted from Sattva for points of contractual interpretation:[21] With respect to the interpretation of contract, the Supreme Court of Canada in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, commencing at para. 46, states:[46] The shift away from the historical approach in Canada appears to be based on two developments. The first is the adoption of an approach to contractual interpretation which directs courts to have regard for the surrounding circumstances of the contract — often referred to as the factual matrix — when interpreting a written contract (Hall, at pp. 13, 21-25 and 127; and J. D. McCamus, The Law of Contracts (2nd ed. 2012), at pp. 749-51). The second is the explanation of the difference between questions of law and questions of mixed fact and law provided in Canada (Director of Investigation and Research) v. Southam Inc., 1997 CanLII 385 (SCC), [1997] 1 S.C.R. 748, at para. 35, and Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, at paras. 26 and 31-36.
[47] Regarding the first development, the interpretation of contracts has evolved towards 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” (Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21, [2006] 1 S.C.R. 744, at para. 27, per LeBel J.; see also Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69, at paras. 64-65, per Cromwell J.). 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. Consideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning:No contracts are made in a vacuum: there is always a setting in which they have to be placed. . . . In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating. [48] The meaning of words is often derived from a number of contextual factors, including the purpose of the agreement and the nature of the relationship created by the agreement (see Moore Realty Inc. v. Manitoba Motor League, 2003 MBCA 71, 173 Man. R. (2d) 300, at para. 15, per Hamilton J.A.; see also Hall, at p. 22; and McCamus, at pp. 749-50). As stated by Lord Hoffmann in Investors Compensation Scheme Ltd. v. West Bromwich Building Society, [1998] 1 All E.R. 98 (H.L.):The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. [p. 115] [49] As to the second development, the historical approach to contractual interpretation does not fit well with the definition of a pure question of law identified in Housen and Southam. Questions of law “are questions about what the correct legal test is” (Southam, at para. 35). Yet in contractual interpretation, the goal of the exercise is to ascertain the objective intent of the parties — a fact-specific goal — through the application of legal principles of interpretation. This appears closer to a question of mixed fact and law, defined in Housen as “applying a legal standard to a set of facts” (para. 26; see also Southam, at para. 35). However, some courts have questioned whether this definition, which was developed in the context of a negligence action, can be readily applied to questions of contractual interpretation, and suggest that contractual interpretation is primarily a legal affair (see for example Bell Canada, at para. 25).
[50] With respect for the contrary view, I am of the opinion that the historical approach should be abandoned. 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. . Pinnacle International (One Yonge) Ltd. v. Torstar Corporation
In Pinnacle International (One Yonge) Ltd. v. Torstar Corporation (Ont CA, 2024) the Ontario Court of Appeal allowed an appeal, here in a sublease profit-sharing dispute.
Here the court cites central principles of contract interpretation:[51] The first, second, and fourth issues involve the interpretation of the Lease and the Boreal Sublease. As neither document is a standard form contract, this court must review the motion judge’s interpretation of those contracts in accordance with the dictates of Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at paras. 52-53. In Sattva, the Supreme Court of Canada explained that because the interpretation of a contract involves questions of mixed fact and law, absent an extricable question of law which attracts a correctness standard, the standard of review is palpable and overriding error: at paras. 50, 53. See also Earthco Soil Mixtures Inc. v. Pine Valley Enterprises Inc., 2024 SCC 20, 492 D.L.R. (4th) 389, at paras. 27-28.
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The governing legal principles
[59] Sattva is the seminal case on the modern approach to interpreting contracts. At para. 47 of Sattva, the Supreme Court provides the following guidance. The modern approach to interpreting contracts is rooted in practicalities and common-sense; it is “not dominated by technical rules of construction”. The court’s overriding concern is to determine the intent of the parties and the scope of their understanding. This requires the 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”. Consideration of the surrounding circumstances – often referred to as the “factual matrix” – “recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning”.
[60] Further, commercial contacts must be interpreted in accordance with commercial reasonableness, sound commercial principles, and good business sense, and in a manner that “avoids a commercial absurdity”: Ventas Inc. v. Sunrise Senior Living Real Estate Investment Trust, 2007 ONCA 205, at para. 24; Ontario Securities Commission v. Bridging Finance Inc., 2023 ONCA 769, 169 O.R. (3d) 109, at para. 21.
The factual matrix
[61] The role and nature of the factual matrix in interpreting the terms of a contract are described as follows at paras. 57-58 of Sattva. The interpretation of a contract must always be grounded in the text and read in light of the entire contract. However, the terms of the contract are not to be read in isolation. In furtherance of the court’s goal of understanding the mutual and objective intentions of the parties as expressed in the contract, the factual matrix must be considered when construing contractual provisions. The factual matrix should consist only of objective evidence of the background facts at the time of the execution of the contract – knowledge that was, or reasonably ought to have been, known by both parties at or before the date of contracting. As noted above, the Supreme Court emphasized the need to always consider the factual matrix when construing contractual provisions “because words alone do not have an immutable or absolute meaning”: Sattva, at para. 47.
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A commercially absurd result
[83] As noted above, commercial contracts must be interpreted in accordance with commercial reasonableness and good business sense: Ventas, at para. 24. Interpretation of commercial contracts is to be rooted in common sense and practicality, not dominated by technical rules of construction: Sattva, at para. 47. .... . JPM Trade Capital Inc. v. Blanchard
In JPM Trade Capital Inc. v. Blanchard (Ont CA, 2024) the Ontario Court of Appeal dismissed an appeal, this from a "judgment in favour of the respondent in the amount of $1,100,000 plus interest and costs."
Here the court considers the role of 'objectivity' in determining the intention of parties, as a matter of contractual interpretation:[10] In Sattva, the Supreme Court changed the law on the applicable standard of review for interpretation of a contract. Rothstein J. explained at para. 47:[T]he interpretation of contracts has evolved towards 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”.... 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. Consideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning:No contracts are made in a vacuum: there is always a setting in which they have to be placed.… In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.
(Reardon Smith Line, at p. 574, per Lord Wilberforce) [11] Just this year, in Earthco Soil Mixtures Inc. v. Pine Valley Enterprises Inc., 2024 SCC 20, 492 D.L.R. (4th) 389, the Supreme Court reminded courts that ascertaining the objective intention of the parties to a contract is the prevailing goal of contractual interpretation and is an “inherently fact specific” exercise: at para. 28. The Court stated at para. 27: “This Court’s jurisprudence firmly establishes that questions of contractual interpretation, which involve questions of mixed fact and law, are ordinarily afforded deference on appellate review.”
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