Vanishing Horizons: Standard Form Contracts on Appeal in Bridging

The Ontario Court of Appeal (the “ONCA”) has provided fresh guidance on the applicable standard of review for a lower court’s interpretation of a standard form contract. Ontario Securities Commission v Bridging Finance Inc., 2023 ONCA 769 [Bridging] sheds light on the question of whether a standard form contract must have precedential value for an appellate court to apply a standard of correctness instead of the default standard of palpable and overriding error.


Standard Form Contracts on Appeal 

In 2014, the Supreme Court of Canada (the “SCC” or the “Court”) released their landmark decision in Sattva Capital Corp. v Creston Moly Corp., 2014 SCC 53 [Sattva]. Rothstein J., writing for a unanimous Court, held that contractual interpretation is a question of mixed fact and law insofar as it involves applying the principles of contractual interpretation to the words of a contract in light of that contract’s factual matrix. Consequently, the interpretation of a contract at first instance is subject to review for palpable and overriding error on appeal (Sattva, paras 50-52). While Rothstein J. noted that an appellate court may be able to identify an extricable question of law that would justify the heightened scrutiny of correctness review, the lower, deferential standard would be the norm (Sattva, paras 53-55). 

Following Sattva, appellate courts grappled with the question of how these principles ought to be applied in reviewing a lower court’s interpretation of a standard form contract. As Hourigan J.A. noted in MacDonald v Chicago Title Insurance Company of Canada, 2015 ONCA 842 [Chicago Title], standard form contracts are often presented on a “take-it-or-leave-it basis” with no meaningful negotiation of terms. In these circumstances, the existence of a unique factual matrix, on which Sattvas prescription of deferential review was largely premised, would be “illusory” (Chicago Title, paras 34-35). Further, there was the problem of precedential value. As many standard form contracts such as insurance policies are sold widely without variation of terms, there was a risk that the same contract would be given differing interpretations at first instance. If appellate courts were confined to deferential review, the result would be inconsistent, unpredictable outcomes across entire industries (Chicago Title, paras 37-40).

The SCC’s decision in Ledcor Construction Ltd. v Northbridge Indemnity Insurance Co., 2016 SCC 37 [Ledcor] addressed these concerns directly, establishing the first definite exception to the Court’s holding in Sattva that contractual interpretation is subject to a deferential standard of review absent an extricable question of law. Writing for an 8-1 majority of the SCC, Wagner J. (as he then was) held that: (1) where an appeal involves the interpretation of a standard form contract; (2) the interpretation of that contract is of precedential value; and (3) there is no meaningful factual matrix that is specific to the parties to aid in the interpretive process, the interpretation should be characterized as a question of law, subject to review on a correctness standard (Ledcor, para 24). These are occasionally referred to as the “Ledcor factors” (see Bridging, para 14).

In the seven years following Ledcor, courts have continued to grapple with the problem of standard form contracts, now seeking to clarify the scope of the exception Wagner J. provided. There remains ambiguity regarding the relationship between the Ledcor factors, including as to whether they present a conjunctive test. In Ledcor, Wagner J. focused on the notion that an interpretation of a standard form contract will tend to have precedential value because the contract lacks a unique factual matrix. If a standard form contract is in widespread use and the specific parties to the dispute have not engaged in any meaningful negotiations to alter its terms, it follows that the interpretation a court reaches will inform how that contract is interpreted for others who are party to a substantially identical contract (Ledcor, paras 38-39). Nonetheless, this does not clarify whether precedential value must be present, nor to what degree, in order for the exception to apply. 

This question has remained in the background at the SCC and beyond. In Matthews v Ocean Nutrition Canada Ltd., 2020 SCC 26 [Ocean Nutrition] Kasirer J. expressly declined to rule on whether a specific clause contained in a standard form employment contract entered into by a “limited number of executives” at a single company had sufficient precedential value to apply the Ledcor exception (Ocean Nutrition, paras 61-62). In Jakab v Clean Harbors Canada, Inc., 2023 ONCA 377 [Jakab], Paciocco J.A. noted in obiter that “[t]he question of whether standard form contracts of adhesion used exclusively within a single organization have a sufficient precedential value to attract correctness review has yet to be settled” (Jakab, para 10). The suggestion emerging from these cases is that precedential value, independent of its relationship to the other Ledcor factors, must be present to some extent before a court can apply a correctness standard of review. 

This question comes to the fore where precedential value is no longer simply a question of degree, but is effectively absent in the circumstances. One such situation would arise on the facts in Bridging.


Vanishing Horizons: The Decision in Bridging


The decision in Bridging arose out of the ongoing insolvency of Bridging Finance Inc. (“BFI”), a private investment management firm placed into receivership in April 2021 on application by the Ontario Securities Commission. BFI raised capital by selling units in their investment funds (the “Bridging Funds”) to investors, using that capital to make high-interest loans to third-party debtors. There was no market for these units; rather, unitholders were required to “redeem” their units in order to cash out. The redemption process involved unitholders effectively selling their units back to BFI on the terms set out in the constating documents governing their relationship with BFI. The constating documents were standard form contracts, with more than 25,000 investors entering into identical agreements. 

In the course of the receivership, certain groups of unitholders asserted priority claims to the assets of the Bridging Funds. One group claimed priority on the basis that they had notified BFI of their intent to redeem their units before BFI was placed into receivership. This group of unitholders took the position that the constating documents indicated their redemption requests had automatically crystallized into enforceable liabilities of the Bridging Funds, creating obligations that entitled them to a priority. These claims cumulatively represented over $218 million in value which would be diverted from the rest of the unitholders, who were already facing a significant shortfall. 

PricewaterhouseCoopers Inc., in its capacity as Receiver of BFI, subsequently brought a motion to resolve all claims to priority. While the motion judge granted priority to another group of unitholders claiming a statutory right of rescission, he interpreted the constating documents as providing that redemption requests would not be automatically accepted—hence they had not automatically become liabilities conferring priority status. The unsuccessful parties subsequently appealed from the motion judge’s decision in Ontario Securities Commission v Bridging Finance Inc., 2023 ONSC 715.

The Standard of Review Issue 

The preliminary issue facing the ONCA was whether to apply the exception in Ledcor and review the motion judge’s interpretation of the constating documents on a correctness standard. With over 25,000 investors having executed the same agreement with BFI, there was no denying that the constating documents were standard form, “take it or leave it contracts” (Bridging, para 11). Further, the motion judge’s decision disclosed no factual findings specific to the parties, making “scant reference” to the agreed statement of facts they had submitted (Bridging, para 13). There was no question that the first and third Ledcor factors were present. 

Rather, the dispute over the applicable standard of review arose solely in respect of the precedential value of the constating documents. BFI remains in the midst of receivership proceedings, and the Receiver, with court approval, has ceased to seek a buyer for BFI’s assets. Writing for the panel, Hourigan J.A. noted that BFI will not be “extant” in the future (Bridging, para 13). Further, no party asserted that the redemption provisions of the constating documents were in any sense widespread across the investment industry.

In one aspect, this is another instance of a standard form contract that is only used within a single organization. In contrast to cases such as Jakab and Ocean Nutrition, however, these issues are compounded by BFI’s ongoing insolvency. Specifically, the collective nature of the insolvency proceedings means that there will be no further claims against BFI which would require an interpretation of the constating documents. Rather, all such claims were now being resolved on the appeal (Bridging, para 13). Consequently, the motion judge’s interpretation has effectively zero precedential value—it only matters to those parties partaking in the present litigation. Therefore, determining the applicable standard of review requires determining whether precedential value, to any degree, is prerequisite to applying the Ledcor exception.

In contrast to the decision in Jakab, Hourigan J.A. elected to resolve this issue despite holding that the motion judge’s interpretation was correct in any event. Holding that a lack of precedential value does not prevent a court from adopting a correctness standard, Hourigan J.A. focused on the presence or absence of a factual matrix as foundational. If there was no unique factual matrix before the motion judge which informed his interpretation, then there is fundamentally no difference between his position and that of the appellate court. Consequently, there is no reason to defer to the motion judge’s interpretation (Bridging, paras 12-14).

Standard Formalities

Hourigan J.A.’s reasoning is compelling and flows naturally from a categorical approach to standard of review, which in civil matters turns on a characterization of the issue as a question of fact, law or mixed fact and law. Plainly, contractual interpretation cannot be a question of mixed fact and law attracting Sattva’s deferential standard of review if the “fact” element is nowhere to be found in the motion judge’s reasons. 

Nonetheless, in Chicago Title Hourigan J.A. himself recognized that judicial economy favours a deferential standard when the issues will not go beyond the interests of the parties, ensuring that appellate courts do not become a forum for relitigating narrow disputes (Chicago Title, para 21). Rather, an appellate court’s role extends beyond adjudicating the issues arising out of specific cases to a responsibility for ensuring consistency in the law across cases (Chicago Title, para 38; Ledcor, para 36).

This rationale is impaired when precedential value vanishes from the horizon. There can be no issue as to consistency in the law if the interpretive outcome will not impact future litigation, as there will then be no cases for that interpretation to be consistent with. In the absence of precedential value, the correctness standard serves only to provide an unsuccessful party with a chance to relitigate their favoured interpretation of the contract de novo and invite the appellate court to adopt it.

Consequently, while Hourigan J.A. maintains that there is no reason to take a deferential approach where the ONCA “is in as good a position as the motion judge” to analyze an agreement (Bridging, para 14), concerns as to judicial economy remain. One might also say that there is no principled reason to provide an unsuccessful party with another roll of the dice on their interpretive theory of choice when it can add nothing to the law moving forward. In the absence of both a unique factual matrix and precedential value, this approach threatens to turn the first instance court into a formality, an “expensive decoration” (Chicago Title, para 39), en route to a final determination.

It remains to be seen whether a party will seek leave to appeal Bridging to the SCC and put this issue squarely before Canada’s highest court. At it stands, Bridging has decided a novel point of law in holding that precedential value is not prerequisite to reviewing a lower court’s interpretation of a standard form contract on a correctness standard. Seven years post-Ledcor, the standard form saga continues. 

Adam Wyville

Adam Wyville is a 3L J.D. student at Osgoode Hall Law School. He holds a Bachelor of Arts in Business, Philosophy, and Political Science from Wilfrid Laurier University. Adam is an avid mooter, having won several accolades both at the undergraduate and law school levels. Last year, Adam represented Osgoode as an oralist at the Price Media Law Moot Court Competition. This year, he is an oralist for the Gale Cup Moot. Adam is involved as an executive member of the Osgoode Society for Civil Litigation and the Osgoode Mooting Society. His legal interests include civil procedure, bankruptcy and insolvency, and the philosophy of law. He will be completing his articles at Thornton Grout Finnigan LLP.

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