General Principles of Interpretation

• Author: John D. McCamus
• Pages: 745-795

745

CHAP TER 19

GENER AL PRINCIPLES OF

INTERPRETATION

A. I NTRODUC TION

The law of contracts provides an in stitutional framework with in which

parties who wi sh to do so can establish an enforceable agreement giv-

ing effect to their mutual intentions. The law of interpretation of agree-

ments addresses t he diff‌icult task of determin ing, on the basis of the

partie s’ actual ag reement, what t hose intent ions should be con sidered

to be. The process of interpretation is an exercise of giving meaning to

the terms adopted by the part ies in formulating their agreement.1 It i s

often said that the process of interpretation is an exercise in attempting

to ascertain t he “true intentions” of the parties. In Consolidated-Bathurst

Export Ltd. v. Mutual Boiler & Machinery Insurance Co.,2 for example,

Estey J. observed as follows: “the normal rules of construction lead a

1 See generally K. L ewison, The Interpretat ion of Contracts, 5th ed. (London: Sweet

& Maxwell , 2011) [Lewison]; G. McMeel, The Construction of Cont racts, 2d ed.

(Oxford: Oxford Universit y Press, 2011); G.R. Hall, Canadian Contractual Inter-

pretation Law, 2d ed. (Markh am, ON: LexisNexis, 2012); S.J. Burton, Elements of

Contract I nterpreta tion (New York: Oxford University Pre ss, 2009); C. Mitchell,

Interpretat ion of Contracts (London: Routledge-Cavendi sh, 2007) [Mitchell].

For an extended rev iew of the latter three volumes, see J.D. McCamu s, “Three

Recent Works on Contractu al Interpretation” (2011) 52 Can. Bus. L.J. 136 and

300. See also E .W. Patterson, “The Interpretat ion and Construction of Contr acts”

(1964) 64 Colum. L. Rev. 833; R. Sullivan, “Interpr eting Contracts in Pract ice

and Theory” (2000) 13 Sup. Ct. L. Rev. (2d) 369.

2 [1979] 1 S.C.R. 888, 112 D.L.R. (3d) 49 [Consolidated-Bathurst Expor t].

THE LAW OF CONTR ACTS746

court to search for an interpretation of which, from the whole of the

contract, would appear to promote or advance the true intent of the

parties at the ti me of entry into the contract.”3

For a variety of reasons, however, the “true intentions” of the parties

may be an elusive quarr y. As a matter of fact, in a particular c ase, the

parties might have quite different intentions at the time of contracting,

with respect to the meaning or signif‌icance of var ious aspects of their

arrangements. The agreement may be entered into on the basi s of a stan-

dard or printed form that at least one of the parties and perhaps both of

them have neither read nor, if read, understood. The meaning of indiv id-

ual terms or phras es in the agreement may be obscure and may not have

been clearly considered by the part ies at the time of contract formation.

The language employed may be ambiguous. The partie s may have at-

tached different meanings to pa rticular term s of the agreement.

It would not be sensible for courts, in many if not all of these kinds

of circumstance s, simply to throw up their hand s and conclude that

since the “true intentions” of the parties cannot be established, the

contract has no meaning a nd will not be enforced. Inescapably, then,

the process of construction or interpretation of agreements must have

an objective component, enabling the interpreter to attribute mean ing

to the agreement even in the absence of “true intentions.” Such an ap-

proach could rest and does in fact to some extent rest on a presu mption

that the partie s intended the terms of the agreement be given t heir

literal meaning regardless of whether either party understood t hat

meaning at the time of contract form ation. Taken to an extreme, this

objective or literal approach would simply render the actual intentions

of the parties ir relevant.

The law of interpretation, however, does not exclusively embrace

either the subjective or objective perspective. On the contrary, the law

of contract interpretation represents a subtle blend of subjective and

objective elements attempting to determine what the part ies probably

did intend on the one hand and, on the other hand, rely ing on objective

methods of interpretation to settle points of diff‌iculty that can not be

resolved on a more subjective basis. Thus, for example, it is tradition-

ally accepted that it is appropriate to look at the par ties’ objectives in

entering into the tran saction to determine how to interpret a part icular

provision of the agreement. The approach is to determine what the par-

ties actually intended the agreement to mean. However, a party that

wishes to asser t that the agreement means somethi ng other than the

3Ibid. at 58 (D.L.R.).

General Pr inciples of Interpretation 747

meaning conveyed by a literal interpretation of the terms used faces the

full weight of the objective element in the law of contract interpretation.

In this chapter and in Chapters 20 and 21, the law of interpretation

is subdivided into f‌ive separate topics. In Section B of this chapter, we

consider f‌irst the law concerni ng the sources that may be examined

for the purpose of interpreting an ag reement. Although the law of in-

terpretation applies, in principle, to both wr itten and oral agreements,

the rules of interpretat ion have developed principally in the context

of interpreting written ag reements. The f‌irst question to be addressed,

then, is to determine the nature of other documents or factual in forma-

tion — often referred to as “extrinsic aids” — that may be examined to

assist in the interpretation of the written agreement. We will then turn

to consider the traditional principles or maxims, canons, or guidelines

to interpretation that provide the interpreter with some assistance in

the exercise of attributing meaning to the terms of an agreement. In

Section D of this chapter, we consider the basis upon which court s

imply terms in agreements, typically to f‌ill gaps in the agreement left

by the parties. A s we shall see, the process of implicat ion is sometimes

one of giving effect to the “true intentions” of the parties but probably

more often is a n exercise in attr ibuting hy pothetica l intention s to par-

ties that they would, as reasonable persons, have articulated if they had

considered the matter in question. Indeed, in a cer tain range of case s,

courts imply terms in ag reements that may be considered to be i m-

pose d as a ma tter of judici al polic y rather than i nferred from the actual

or hypothet ical intent ions of the p arties. Two discrete problems t hat

have attracted much judicial discussion will be given separate treat-

ment in Chapters 20 and 21. In Chapter 20, an account is given of the

history and cur rent status of what has traditionally been referred to as

the doctrine of “funda mental breach,” a doctrine that h as developed

with respect to the interpretation or control of the use of exculpatory

or limitations clauses. In Chapter 21, the question of whether, under

Canadian com mon law, courts have fashioned a doctri ne requiring par-

ties to perform their obligations i n good faith will be examined. A s will

be suggested, it appears that such a doctrine is slowly emerging in the

form of an implied term to this effect.