Corner Brook (City) v Bailey: Insurers and Defence Counsel Breathe a Sigh of Release

August 4, 2021

On July 23, 2021, the Supreme Court of Canada released its decision in Corner Brook (City) v Bailey, 2021 SCC 29. The Court allowed the appeal and reinstated the stay of the third party claim.

Background

Bailey suffered injuries when she struck pedestrian worker, Temple, and Temple’s employer’s vehicle. Bailey sued Temple’s employer (the City of Corner Brook), for damages respecting her injuries and the property damage to her vehicle.

The City of Corner Brook settled Bailey’s claim for personal injuries and property damage for $7,500 in exchange for a full and final release. The release included standard boilerplate language, including that the City of Corner Brook was released from “…all demands and claims of any kind or nature whatsoever arising out of or relating to the accident which occurred on or about…”

Subsequently, Temple brought a separate action against Bailey for damages for his injuries. Nearly five years later, Bailey’s insurer filed a defence to Temple’s action and issued a third party notice to the City of Corner Brook, seeking indemnity or contribution. The City of Corner Brook brought an application for summary trial to dispose of the third party claim on the basis that the release barred it. This issue ultimately made it to the Supreme Court of Canada.

Summary Trial Decision

At summary trial, Justice Murphy followed the “Blackmore Rule” when interpreting the release. He explained that upon interpreting a release, the goal is to ascertain the intention of the parties through an objective lens. Accordingly, the Court must first look to the words of the release. Following which, it may also look to the context in which the release was signed to interpret those words. The Court concluded that the release covered the third party claim against the City of Corner Brook and therefore ordered a stay. Bailey appealed.

Court of Appeal Decision

On appeal, Justice Butler, writing for a unanimous Court of Appeal, held that the focus of the release was Bailey’s own claim against the City of Corner Brook, noting that the Blackmore Rule had been incorporated into the broader contractual interpretation principles prescribed by the Supreme Court of Canada in Sattva Capital Corp v Creston Moly Corp, 2014 SCC 5.

The Court of Appeal found that the release did not contemplate damages outside of Bailey’s claim for personal injury and property damage. At paragraph 71, Justice Butler held that the trial judge made the following errors:

…The trial judge erred in putting too much weight on the broad, general language of the Release, in failing to consider “those things that were specially in the contemplation of the parties” at the time when the Release was given and in considering a “dispute that had not emerged” and/or a “question that had not at all arisen” when the Release was signed, as relevant to the interpretation of the Release.

The Court of Appeal reinstated the third party notice, and the City of Corner Brook appealed to the Supreme Court of Canada.

Supreme Court of Canada Decision

The Supreme Court of Canada overturned the Court of Appeal’s decision and reinstated the decision of the applications judge. Justice Malcolm Rowe (a former justice of both the Newfoundland and Labrador Trial Division and Court of Appeal), wrote for a unanimous court.

Justice Rowe affirmed the notion that there is no particular “rule” for interpreting releases. Instead, the Court cited its decision in Sattva that courts must “read the contract as whole, giving words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of the formation of the contract.”

The Court cautioned, however, that while contextual factors are often used to determine the meaning of words in a release, surrounding circumstances should never “overwhelm the words of that agreement” or “deviate from the text such that the court effectively creates a new contract.” The Court also noted that consideration to surrounding circumstances is limited to objective evidence.

With regards to the “Blackmore Rule”, the Court agreed with the Court of Appeal that while the Blackmore Rule does not detract from the current law on contractual interpretation, it no longer adds any value. Instead, courts should defer to the ordinary rules of contractual interpretation when interpreting releases.

Finally, the Supreme Court of Canada noted that while there was no general rule of limiting the scope of releases, the wording of certain releases may suggest that a narrow interpretation is appropriate. The Court commented that in many cases, releases are often worded broadly to catch any and all future claims. Where this is so, the Court stated that a narrow interpretation is more likely to follow. Accordingly, when drafting releases, Justice Rowe provided the following guidance, at paragraph 41:

the drafter of a release might consider wording that makes clear whether the release will cover unknown claims and whether the claims must be related to a particular area or subject matter. This is a sensible approach. I would add that releases that are narrowed to a particular time frame or subject matter are less likely to give rise to tension between the words and what the surrounding circumstances indicate the parties objectively intended.

Key Takeaways

While insurers and defence counsel can now rest a little easier, the Supreme Court of Canada provided the following useful guidance when it comes to drafting and interpreting full and final releases:

  1. The release should include clear wording to release unknown or future claims. This can be done by using explicit language as to whether the release will cover unknown and/or future claims and by specifying whether the unknown or future claims are related to a particular time period, area, or subject matter.
  2. It is not necessary to list every possible type of claim (i.e., crossclaim, third party claim, counter claim, etc.). Instead, comprehensive language such as “all actions, suits, causes of action…foreseen or unforeseen…and claims of any kind or nature whatsoever…” is enough to capture all types of claims.
  3. The “Blackmore Rule” is no more – the ordinary principles of contractual interpretation apply to the interpretation of releases. Accordingly, when interpreting releases, the particular wording of the release is paramount to contextual factors, which must be viewed with an objective lens when interpreting the meaning of the contractual language.
  4. Contractual interpretation is a fact specific exercise and should be treated as a mixed question of fact and law for the purpose of appellate review, unless there is an extricable question of law.

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