C. Canons of Construction
| Author | John D. McCamus |
| Profession | Professor of Law. Osgoode Hall Law School, York University |
| Pages | 716-729 |
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In this section, we examine the traditional principles or maxims or canons of construction. Although the canons are often referred to as principles or rules, they are not rules in any meaningful sense. They are, rather, guidelines or aids to interpretation that may suggest fruitful
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lines of analysis but they rarely point in the direction of an inescapable conclusion. Further, in any case of interest, it is very likely that several canons will be engaged or relied upon by the parties, some pointing in one direction, some in the other. In short, the construction or interpretation of agreements is an art, not a science. The canons are the toolkit with which the artisan must work. The principal canons are briefly examined below.
Agreements are to be construed in such fashion as to effectuate the intentions of the parties as can best be determined from the entirety of the agreement. Individual terms are thus to be construed in the light of their relationship to other parts of the agreement and the overall objectives of the agreement. In BG Checo International Ltd. v. British Columbia Hydro & Power Authority,57 La Forest and MCLACHLIN JJ. stated the basic principle in the following terms: "It is a cardinal rule of the construction of contracts that the various parts of the contract are to be interpreted in the context of the intentions of the parties as evident from the contract as a whole."58Each term must be interpreted, to the extent that it may bear the appropriate meaning, harmoniously with the other terms of the agreement. Accordingly, when so construed, the term in question may bear a meaning other than its most obvious meaning.59In MCCLELLAND & Stewart Ltd. v. Mutual Life,60for example, the Supreme Court of Canada was required to construe a life insurance policy taken out by an author in favour of the plaintiff publisher. The issue in the case was whether the insurer, upon the death of the author, was exempt from liability under the policy as a result of the operation of a self-destruction clause. The clause excluded liability arising from self-destruction of the author within two years of the "effective date" of the policy. On a plain reading of the clause, together with the application form completed for the
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policy, a strong argument could be made that the effective date of the policy for purposes of the self-destruction clause was the date on which the policy had been delivered to the insured rather than the date to which the policy had been backdated by the parties. Dickson J., after noting that the terms, when read in isolation, offered strong support for the insurer’s interpretation, nonetheless held that when the documents were construed in their entirety, the earlier date was the effective date of the policy for all purposes, including the proper interpretation of the self-destruction clause.
Further, a term that appears to have a plain meaning may, when construed in the context of the entire agreement, be rendered ambiguous.61In order to resolve the ambiguity, resort may then be made to other principles of interpretation or extrinsic aids. The principle of construction of the agreement as a whole also suggests that where a term is employed in various contexts in an agreement, regard may be had to all uses of the particular term. The use of a particular term in one portion of an agreement may obviously be of some assistance in clarifying the meaning of the same term in another part of the agreement.62However, there does not appear to be a rule of construction that particular words are presumed to be used consistently throughout an agreement.63Construction of individual provisions in light of the intentions of the parties as manifest in the agreement as a whole may have the effect of resolving inconsistencies between terms. A standard technique for reconciling a conflict between a more general provision and one that deals inconsistently with a more specific matter is to read the latter provision as an exception to or qualification of the more general term. In BG Checo, for example, an agreement relating to the construction of a hydro transmission line provided that the defendant hydro authority was to clear the land on which the line was to be erected. A more general provision of the agreement, however, provided that the contractor assumed responsibility for satisfying himself as to site conditions and assumed responsibility for any misunderstandings with respect to the condition of the site. The contractor successfully claimed for losses resulting from the hydro authority’s failure to have properly cleared the site on the basis that its more specific obligation to do so was an exception to the general exclusion of liability with respect to the condition of the work site.
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The basic principle that terms are to be interpreted in the context of the entire agreement between the parties is often coupled with the instruction that effect should be given, if possible, to all parts of the agreement. No provision of the agreement, it is sometimes said, should be considered to be "otiose" or "redundant" or mere surplusage.64In Re Strand Music Hall Co. Ltd.,65Lord Romilly M.R. provided the following statement of the general principle: "The proper mode of construing any written instrument is, to give effect to every part of it, if this be possible, and not to strike out or nullify one clause in a deed, unless it be impossible to reconcile it with another in a more express clause in the same deed."66
Thus, courts will lean against an interpretation of an agreement that will render one of the terms meaningless.67At the same time, it is appreciated that agreements, especially agreements drafted by lawyers, will often contain language that is duplicative as Lord Hoffmann recently suggested, as a result of the "lawyer’s desire to be certain that every conceivable point has been covered."68For this reason, he suggested "the argument from redundancy is seldom an entirely secure one."69
In choosing among possible constructions of an agreement, courts will avoid an interpretation that produces a commercial result that is considered unreasonable. In Consolidated-Bathurst Export Ltd. v. Mutual Boiler & Machinery Insurance Co.,70Estey J. expressed the principle in the following terms: "Where words may bear two constructions, the more reasonable one, that which produces a fair result, must certainly be taken as the interpretation which would promote the intention of the parties. Similarly, an interpretation which defeats the intentions of
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the parties and their objective in entering into the commercial transaction in the first place should be discarded in favour of an interpretation of the policy which promotes a sensible commercial result."71In this case, the Supreme Court avoided an interpretation of an insurance policy that, in the Court’s view, "would render the endeavour on the part of the insured to obtain insurance protection nugatory."72The principle is often expressed in terms of avoiding "absurdity" or "absurd consequences."73In this context, however, the concept of absurdity appears to be used interchangeably with the notion of commercial unreasonableness. It is not necessary to establish that the unattractive interpretation of the agreement produces a result that is, in some sense, an outrageous one. Thus, in Guarantee Co. of North America v.Gordon Capital Corp.,74
for example, the Supreme Court of Canada was confronted with a choice between two plausible interpretations of a fidelity insurance bond under which a brokerage was insured against losses caused by dishonest and fraudulent acts of its employees. The dispute concerned, first, the proper interpretation of a provision that enabled "rescission" of the agreement by the insurer in the event that false statements had been included in the application for the bond and, second, the effect of an improper exercise of the right to rescind by the insurer on the contractual limitation periods stipulated elsewhere in the bond as binding on the insured. The insured had notified the insurer of a substantial loss. The insurer, having discovered what it considered to be a material misrepresentation in the original application, purported to "rescind" the bond. The insured then commenced this action. The insurer defended the insured’s claim, however, on the basis that the insured had not commenced its claim within the applicable two-year limitation period stipulated in the bond. For purposes of a preliminary motion on the limitations point, it was accepted by the parties that the insurer had engaged in an improper rescission of the bond. The interpretation preferred by the insured was that the insurer, having improperly purported to rescind the bond, had committed a repudiatory breach75and could not rely on the procedural protections - including the stipulated limitations period for claims by the insured - otherwise
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available to it under the bond. The Ontario Court of Appeal agreed with the position of the insured on this point.76The interpretation preferred by the insurer, however, was that the procedural protections of the limitation...
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