General Principles of Interpretation
| Author | John D. McCamus |
| Pages | 801-862 |
801
CH AP TE R 19
GENER AL PRINCIPLES
OF INTERPRETATION
A. INTRODUCT ION
The law of contracts provides an inst itutional framework within which
parties who wi sh to do so can establish an enforceable agreement giv-
ing effect to their mutual intentions. The law of inter pretation of agree-
ments addresses t he difficult task of determining, on the ba sis of the
parties’ actual agreement, what those intentions should be considered
to be. The process of interpretation is an exerci se of giving meaning to
the terms adopted by the par ties in formulating their agreement.1 It is
often said that the process of interpretation is an exercise in attempt-
ing to ascertai n the “true intentions” of the parties. In Con solidat-
ed-Bathurst Export Ltd v Mutu al Boiler & Machinery Insurance Co,2 for
1 See generally K L ewison, The Interpretati on of Contracts, 5th ed (London: Sweet
& Maxwell, 2 011) [Lewis on]; G McMeel, The Constructio n of Contracts, 2d ed
(Oxford: Oxford Universit y Press, 2011); JW Carter, The Constr uction of Com-
mercial Contracts (Oxford: Hart Publishi ng, 2019); GR Hall, Canadian Contrac-
tual Interp retation Law, 3d ed (Toronto: LexisNex is, 2016); SJ Burton, Elements
of Contract Interpreta tion (New York: Oxford University Press, 20 09); C Mitchell,
Interpretati on of Contracts, 2d ed (London: Routledge-Cavend ish, 2019) [Mitchell].
For an extended rev iew of the latter three volumes, se e JD McCamus, “Three
Recent Works on Contractu al Interpretation” (2011) 52 Can Bus LJ 136 and
300. See also E W Patterson, “The Interpretation and C onstruction of Contracts”
(1964) 64 Colum L Rev 833; R Sullivan, “Interpret ing Contracts in Pract ice and
Theory” (2000) 13 Sup Ct L Rev (2d) 369.
THE LAW OF CONTR ACTS802
example, Estey J observed a s follows: “the normal rules of constr uction
lead a court to search for an interpretat ion 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 par-
ties may be an elusive quarry. As a matter of fact, in a particular c ase,
the parties might have quite different intentions at the time of contract-
ing, with respect to the meaning or significance of various aspects of
their arrangements. The agreement may be entered into on the basis of
a standard or printed form t hat at least one of the parties and perhaps
both of them have neither read nor, if read, understood. The meaning of
individual term s or phrases 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 part ies may
have attached different meani ngs to particular term s of the agreement.
It would not be sensible for courts, in many if not all of these ki nds
of circumstances, si mply to throw up their hands and conclude that
since the “true intentions” of the part ies 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 “tr ue intentions.” Such an
approach could rest and does in fact to some extent rest on a presump-
tion 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 form ation. Taken to an extreme, th is
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 contrar y, the law
of contract interpretation represents a subtle blend of subjective and
objective elements attempting to determine what the pa rties probably
did intend on the one hand and, on the other hand, rely ing on objective
methods of interpretation to settle point s 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 tra nsaction to determine how to interpret a particular
provision of the agreement. The approach is to determine what the
parties actua lly intended the agreement to mean. However, a party that
wishes to assert that the agreement means something ot her than the
3 Ibid at 58 (DLR).
General Pr inciples of Interpretation 803
meaning conveyed by a literal inter pretation of the terms used faces the
full weight of the objective element in the law of contract interpretat ion.
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 exami ned for
the purpose of interpreting an agreement. Although the law of inter-
pretation applies, in principle, to both written a nd 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 n ature of other documents or factual informa-
tion — often referred to as “extrinsic aids” — that may be examined to
assist in the inter pretation of the written ag reement. We will then turn
to consider the traditional pr inciples 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. A s we shall see, the process of implication is sometimes
one of giving effect to the “true intentions” of the parties but prob-
ably more often is an exercise in attributing hypothetical intentions
to parties th at they would, as reasonable persons, have articul ated 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 imposed as a matter of judicia l policy rather than inferred from t he
actual or hypothetical i ntentions of the parties. Two discrete problems
that have attracted much judicial discussion will be given separ ate
treatment in chapters 20 and 21. In Chapter 20, an account is given of
the history and cur rent status of what has traditionally been re ferred 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 clause s. In Chapter 21, the extent to which, under Cana-
dian common law, courts have fashioned a doctrine requiring parties
to perform their obligations in good faith, will be examined.
B. SOURC ES
1) Introduction
The first step in the process of interpretat ion is to identify the target
of interpretation — the communications between the parties that con-
stitute the terms of their ag reement. In the typical case, t he object of
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