General Principles of Interpretation

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

745

CHAPTER 19

GENERAL PRINCIPLES OF

INTERPRETATION

A. INTRODUCTION

The law of contracts provides an institutional framework with in which

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

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

ments addresses the diff‌icult task of determining, on the basis of the

parties’ actual agreement, what those intentions should be considered

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

the terms adopted by the parties in formulating their agreement.1 It is

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

to ascertain the “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

1See 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 time of entry into the contract.”3

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

may be an elusive quarry. As a matter of fact, in a particular case, the

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

with respect to the meaning or signif‌icance of various 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 parties at the time of contract formation.

The language employed may be ambiguous. The parties may have at-

tached different meanings to particular terms of the agreement.

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

of circumstances, simply to throw up their hands and conclude that

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

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

the process of construction or interpretation of agreements must have

an objective component, enabling the interpreter to attribute meaning

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 parties intended the terms of the agreement be given their

literal meaning regardless of whether either party understood that

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

objective or literal approach would simply render the actual intentions

of the parties irrelevant.

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 parties 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 cannot be

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

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

entering into the transaction to determine how to interpret a particular

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 assert that the agreement means something other than the

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

General Pr inciples of Interpretation747

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 concerning the sources that may be examined

for the purpose of interpreting an agreement. Although the law of in-

terpretation applies, in principle, to both written and oral agreements,

the rules of interpretation have developed principally in the context

of interpreting written agreements. The f‌irst question to be addressed,

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

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 courts

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

by the parties. As we shall see, the process of implication is sometimes

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

more often is an exercise in attributing hypothetical intentions to par-

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

considered the matter in question. Indeed, in a certain range of cases,

courts imply terms in agreements that may be considered to be im-

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

or hypothetical intentions of the parties. Two discrete problems that

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 current status of what has traditionally been referred to as

the doctrine of “fundamental breach,” a doctrine that has 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 common law, courts have fashioned a doctrine 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.