Corner Brook (City) v Bailey: Interpreting Releases and Drafting Contracts

Justice Rowe of the Supreme Court of Canada (“SCC”) stated that Corner Brook (City) v Bailey, 2021 SCC 29 [Corner Brook] is about “the proper approach to interpreting the scope of a release” (Corner Brook, para 1). In a unanimous decision, the SCC determined that the general principles of contract law in Sattva Capital Corp. v Creston Moly Corp., 2014 SCC 53 [Sattva] have overtaken the Blackmore Rule, and that there is no special interpretive rule that applies to releases. In addition, the SCC provided valuable guidance for drafting effective contracts.

 

Facts of the Case

On March 3, 2009, Mrs. Bailey struck Mr. Temple, an employee of the City of Corner Brook (“the City”), while driving her husband’s car. At the time of the accident, Mr. Temple was performing road work. The Baileys subsequently commenced an action against the City for property damage to the car and Mrs. Bailey’s physical injuries (“Bailey Action”). Around the same time, Mr. Temple commenced a separate action against Mrs. Bailey for his injuries (“Temple Action”).

The Baileys and the City engaged in settlement discussions, and on August 16, 2011, the Baileys accepted the City’s settlement offer of $7,500, contingent on the execution of an approved release. The Baileys signed a release to the City’s satisfaction on August 26, 2011.

On March 16, 2016, Mrs. Bailey commenced a third party claim against the City in the Temple Action. She claimed contribution or indemnity from the City if she was found liable.

 

The Blackmore Rule and the Decisions Below 

The Blackmore Rule, established in London and South Western Railway Co. v Blackmore, (1870) LR 4 HL 610 [Blackmore], has historically provided the interpretative approach for releases. It states:

The general words in a release are limited always to that thing or those things which were specially in the contemplation of the parties at the time when the release was given. But a dispute that had not emerged or a question which had not at all arisen, cannot be considered as bound and concluded by the anticipatory words of a general release (Blackmore, 623-624).

The lower courts disagreed on the status of the Blackmore Rule. At the Supreme Court of Newfoundland and Labrador (Temple v Bailey, 2018 NLSC 177), Justice Murphy applied the Blackmore Rule and looked to the words of the release and the context of the contract formation to interpret the release. In regards to context, Mr. Temple had already served Mrs. Bailey (the Temple Action) when she signed the release. Furthermore, Mrs. Bailey’s statement of claim against the City (the Bailey Action) showed that when she signed the release, she was aware of the facts that would serve as the basis for the third party claim. Justice Murphy held that the words and the context of the release supported Mrs. Bailey’s third party claim.

In contrast, the Court of Appeal of Newfoundland and Labrador (“Court of Appeal”) (Bailey v Temple, 2020 NLCA 3)  concluded that the principles of contractual interpretation affirmed by the SCC in Sattva already incorporate the Blackmore Rule:

[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 (Sattva, para 47).

The Court of Appeal also stated that the result should be the same whether one uses the Blackmore Rule or the principles in Sattva

Reviewing Justice Murphy’s decision, the Court of Appeal unanimously allowed the appeal, reasoning that any broad phrases in the release needed to be compared to more specific references in the Bailey Action. The Court of Appeal also noted that the parties did not reference the Temple Action or any potential third party action during the pre-contract exchange. They held that the release should be interpreted as only releasing the Baileys’ claims in the Bailey Action.

In the SCC decision, Justice Rowe explored the history of contractual interpretation and clarified the current law governing the interpretation of releases. Courts have historically applied the Blackmore Rule narrowly; courts applying the Blackmore Rule have not considered the parties’ subjective intentions and have found releases to cover claims unknown at contract formation when appropriate. This narrow interpretation is consistent with the application of ordinary contract law principles. However, with the principles in Sattva established, Justice Rowe concluded that the Blackmore Rule no longer contributes to the Canadian law of contractual interpretation. Justice Rowe illustrated this by referring to the application judge’s decision: “[Justice Murphy’s] conclusion about what the parties “contemplated” is synonymous with the language from Sattva about what the parties mutually, objectively intended” (Corner Brook, para 32). In conclusion, the SCC found that the Blackmore Rule is of no use as it neither adds nor deviates from the rules in Sattva.

 

The Nature of Releases

The SCC also explored the implications that arise from the nature of releases. With releases, there may be greater tension than usual between the ordinary meaning of the words and the surrounding circumstances for two reasons. Firstly, releases are often expressed broadly. As the plain meaning of the words could prevent the releasor from suing the releasee for any reason, without time limits, the surrounding context often counters extreme breadth of wording. Secondly, parties involved in a release are often trying to address unknown risks. If an unexpected claim arises, the surrounding context can contradict the words of the release. Because of this tension, courts often interpret releases more narrowly than other types of contracts.

There are several factors to consider in determining whether a release covers a claim. For example, the wording should clearly indicate which type of claims are covered by the release (Corner Brook, para 41). If a release covers only a particular subject or time frame, the tension between the words and the surrounding circumstances is less likely (Corner Brook, para 41). Whether certain facts were known by both parties or not may also be relevant for assessing whether both parties intended to release a specific claim (Corner Brook, para 43).

Ultimately, parties must look to the wording of the release and the context of the case. As this is consistent with the ordinary principles of contractual interpretation as articulated in Sattva, the SCC concluded that “any judicial tendency to narrow the meaning given to broad wording [in a release] is not the function of any special rule, but rather a function of the context in which releases are given” (Corner Brook, para 43).

 

SCC’s Reasoning

The Words

The SCC accepted the application judge’s holding that the release’s wording encompassed Mrs. Bailey’s third party claim. The release included “all actions, suits, causes … foreseen or unforeseen … and claims of any kind or nature whatsoever arising out of or relating to the accident which occurred on or about March 3, 2009” (Corner Brook, para 51). The SCC found this wording sufficiently clear, and stated that there was no “principled reason” for the parties to list every type of claim possible (Corner Brook, para 51).

The next clause of the release also supported a broad interpretation. It stated that the “generality of the foregoing” was not limited to “claims raised or which could have been raised in the [Bailey Action]” (Corner Brook, para 52). In other words, the contract covered more than the claims that were or could have been raised in the Bailey Action.

The Context

The SCC agreed with the application judge that the surrounding circumstances also supported coverage of the third party claim. Both parties were aware that Mrs. Bailey had struck a City employee with her car and that the opposing side knew. As this was the case, both parties must have known or ought to have known on an objective basis that Mr. Temple may have had a claim against one or both of the parties. More crucially, both Mrs. Bailey and the City should have known that a claim by Mr. Temple would put both sides “in an adverse position to one another,” i.e., both sides would look to blame the other (Corner Brook, para 53). These circumstances weighed in favour of including Mrs. Bailey’s third party claim in the scope of the release. Lastly, because the parties narrowed the release’s subject matter to claims related to the accident, this highly reduced the possibility of the surrounding circumstances outweighing the plain meaning of the words. In other words, the limited scope of the release negated any tension between the words and the surrounding circumstances. In the end, the SCC concluded that the surrounding circumstances did not indicate that they should interpret the words of the release differently from their plain meaning.

 

Analysis and Moving Forward

In their decision, the SCC recognized that the Blackmore Rule and the contractual interpretation principles articulated in Sattva are applied in the same way, as both require courts to observe both words and context. The Blackmore Rule requires courts to consider what was in the contemplation of the parties, while the Sattva principles require consideration of the surrounding circumstances, i.e., objective intentions of the parties. The SCC recognized that both analyses yield the same results. Therefore, the SCC was justified in finding that any judicial tendency to interpret releases narrowly is due to its unique nature of releases themselves. The confirmation of the Sattva principles was also a subtle but important reminder of the necessity of considering both words and factual context in contractual interpretation. In many cases, words do not tell the whole story.

With regards to the specific facts of the case, the SCC’s reasoning that the plain meaning of the words of the release were abundantly clear are difficult to dispute. What may be more debatable is the context; the SCC had to make inferences based on the objective knowledge of both parties. However, in my opinion, the inferences were reasonably made. As both sides were aware of the accident, it was reasonable for the SCC to infer that the parties should have known Mr. Temple may have a claim against them. It was also reasonable to infer that both sides should have known that each might blame the other; this was the most convenient legal avenue for both parties. There was no good reason to find that the broad phrases in the release should be considered against specific references to the Bailey Action, as was suggested by the Court of Appeal. This approach would have not only conflicted with the plain meaning of the words but also with the parties’ objective understanding that claims covered by the release were not necessarily limited to those arising out of the Bailey Action.

The decision will hopefully encourage parties to draft their releases carefully and deliberately. If a releasor wants their release to cover unforeseen claims, they should use clear wording that indicates their intentions. If possible, they should also focus on a particular subject matter and time frame to narrow the scope of the release; this would likely ease any tensions between the words and the context. On the other side, if a release includes unforeseen claims, the releasor should be aware of the risk that the releasee is allocating to them. The releasor is “[taking] on the risk of relinquishing the value of the claims [they] might have had” because the releasee is “[paying] for the guarantee that no such claims will be brought” (Corner Brook, para 27). Parties can apply the lessons on drafting releases from this decision to constructing all types of contracts: use clear wording, be aware of the context that informs the contract’s formation and its effects, and understand the allocation of risk between the parties.

 

Joey Jang

Joey Jang

Joey Jang is a second-year JD student at Osgoode Hall Law School. He previously completed a Bachelor of Music at the University of Toronto. At Osgoode, Joey has volunteered for Law in Action Within Schools (LAWS) as a tutor and mentor to high school students facing barriers to success. He is currently a caseworker at Parkdale Community Legal Services in the Housing Rights division. Joey is also an executive team member of the Osgoode Labour & Employment Law Society (OLELS) and Mock Trial, Osgoode’s annual student-run variety show. Outside of law school, Joey is active as a part-time professional musician.

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