UNMIXING THE MIXED QUESTIONS: A FRAMEWORK FOR DISTINGUISHING BETWEEN QUESTIONS OF FACT AND QUESTIONS OF LAW IN CONTRACTUAL INTERPRETATION.

• Author: Bertolini, Daniele
• Position: ARTICLES

In the world of law, there is no fact "in itself no "absolute" fact, there are only facts ascertained by a competent organ in a procedure prescribed by law. (1) the quaestio facti... becomes relevant... only in the context defined by the quaestio iuris. (2) I. INTRODUCTION

In Sattva Capital Corp v Creston Moly Corp, (3) the Supreme Court of Canada established that contractual interpretation generally involves questions of mixed fact and law subject to a standard of palpable and overriding error, except in rare circumstances where an extricable error of law is identified. The Court confirmed and further articulated this holding in Ledcor Construction Ltd v Northbridge Indemnity Insurance Co and Teal Cedar Products Ltd v British Columbia. (4) This development constitutes a major change in the Canadian common law of contract. While the historical approach to contractual interpretation mandated that legal rights and obligations of the parties under a written contract were considered a question of law to be reviewed on appeal on a standard of correctness, the modern approach delineated in Sattva establishes that a deferential standard of review, as opposed to one of correctness, generally applies to issues of contractual interpretation.

The characterization of contractual interpretation as a question of mixed fact and law rather than a legal question has significant practical implications. First, it alters the institutional division of labour between the appellate courts and lower courts. Under the historical approach, an appellate court reviewing a trial judge's decision undertook a de novo analysis of the meaning of the contract, bound only by the trial judges factual findings. Now, Sattva's deferential standard permits an appellate court to interfere with a trial judge's decision on a contractual interpretative issue only if the trial judge makes a palpable and overriding error or an extricable error of law. (5) Second, the new approach to deference limits the availability of appellate review in contractual interpretation disputes. After Sattva, the party seeking to overturn the trial judge's decision must satisfy the court either that the trial judge made a palpable or overriding error, or that an extricable error of law can be identified from within what is initially characterized as a question of mixed fact and law. This significantly raises the burden of persuasion on both the party seeking leave to appeal and the appellant party. (6) Furthermore, in cases where the relevant statute permits appeal only on a point of law, the qualification of contractual interpretation as a mixed question defeats a court's appellate review jurisdiction, thereby making it virtually impossible to appeal a decision. (7)

Not surprisingly, the new approach to deference has sparked criticism from various parties in the legal community. Tension has emerged between the Supreme Court's shift away from the historical common law approach to deference and appellate courts' attempts to restore it. In the aftermath of Sattva, both the British Columbia Court of Appeal and the Alberta Court of Appeal have refused to apply Sattva to appeals involving standard form contracts. (8) In the Ledcor decision, the Supreme Court adjusted Sattva by recognizing that interpretation of a standard form contract may be a question of law to be reviewed on correctness. (9) After Ledcor, however, a growing number of appellate courts' decisions introduced further exceptions to Sattva's deferential rule and identified a number of extricable errors of law in contractual interpretation. In Teal, the Supreme Court intervened to warn courts against this tendency to extend the notion of extricable errors of law. (10) Appellate courts often disregard this caution, resulting in a growing body of case law addressing whether contractual interpretation raises questions of law or questions of mixed fact and law.

Many legal commentators criticize the Supreme Court's new approach to deference. A few authors have argued that there is no rational basis to accord deference to the trial judge's interpretation of the contract." Once the trier of fact has determined the facts in dispute, the exercise of interpreting the contract is essentially a legal one, with respect to which trial judges have no particular advantage over appellate courts. Several critical commentaries emphasize that the deferential rule laid down in Sattva inappropriately disrupts the division of labour between lower courts and appellate courts, ultimately undermining the error-correcting function of appellate courts. (12) Other commentators have observed that Sattva's deferential standard erodes litigants' statutory right of appeal, ultimately subjecting litigants to the "luck of draw" or "the idiosyncrasies of the finder of fact." (13) A number of commentaries doubt the ability of the new jurisprudential framework to ensure legal certainty and judicial efficiency. The conceptual indeterminacy of the notions of "mixed fact and law questions" and "extricable errors of law" creates the potential for increasing litigation over the appropriate standard of review and is likely to result in parties to a contractual dispute routinely arguing not only about the substantive merits of the appeal, but also about the applicable standard of review. (14) This, in turn, generates uncertainty on the availability of appellate review yet does not relieve a reviewing court from the necessity of properly characterizing the nature of the interpretation questions at issue. Finally, it is plausible that the contextual approach to contractual interpretation will generate increasing demand for appellate review of trial judges' decisions, yet the deferential rule in Sattva seems likely to frustrate this growing demand. (15)

These commentaries usefully (and correctly) illuminate crucial aspects of Sattva and its progeny, underlining the need for greater clarity and consistency on the appropriate standard of appellate review in contractual interpretation. However, while focusing on the practical implications of these cases, commentators have seldom engaged in an in-depth analysis of the conceptual foundations of the new approach to deference. Lacking a careful examination of the conceptual underpinnings of this new jurisprudential trend, the debate thus far fails to provide guidance on how to promote greater clarity and consistency on the appropriate standard of appellate review in contractual interpretation. This article examines the theoretical foundations of the Supreme Court's new approach to deference and proposes a methodological framework for distinguishing between questions of law and questions of fact in contractual interpretation. Based on the proposed framework it suggests an alternative categorization of contractual interpretation issues. The ultimate goal is to provide more coherent guidance on the choice of the appropriate standard of appellate review in this area.

This article's central thesis is twofold. First, it is argued that the recent case law development introduced by the Supreme Court lacks rigorous analytical foundations and therefore fails to provide adequate guidance on choosing the appropriate degree of deference on appeal. Rather than generalizing the deferential standard to all contractual interpretation issues and relegating correctness review to exceptional cases of extricable errors of law, a more sensible approach would be to distinguish between the various steps involved in the process of contractual interpretation and locate each step at the proper point on the fact/law spectrum. Second, it is posited that a useful methodological approach for distinguishing between questions of fact and questions of law is 1) to identify the cognitive task performed by the judge when adjudicating the contended issue, and 2) to assess the relative advantage of adjudicating actors in performing that cognitive task. Cognitive task refers to the type of judicial reasoning, or inferential activity, the judge performs when deciding an issue. (16) It is suggested here that the conceptual categories developed to explain the adjudicative reasoning provide useful insights into understanding and operationalizing the distinction between questions of fact and questions of law.

It is widely recognized that the fact/law distinction is an allocative device used to distribute decision-making authority between appellate courts and trial judges. (17) A variety of well-recognized policy reasons suggest assigning the primary responsibility for fact-finding to trial courts, while entrusting appellate courts with the primary role of delineating and refining legal rules. (18) What remains the source of considerable debate is how to operationalize the distinction between questions of fact and questions of law. (19) It is argued here that because the distinction is formulated for allocative purposes, it should be driven by a comparative institutional assessment of the relative advantages of trial judges and appellate courts in performing the various tasks involved in the adjudication process. The type of cognitive task performed by the judge in adjudicating interpretive issues provides a workable basis for conducting the comparative assessment that underpins the distinction between questions of fact and questions of law. Once the nature of the cognitive task involved in deciding an issue is identified, one can evaluate which institutional actor is better placed to perform that cognitive task.

The proposed methodology enhances the clarity and coherence of the fact/law distinction in contractual interpretation. (20) The current case law grounds the distinction on the degree of generality of the issue being considered. (21) However, the degree of generality is woefully incomplete as a controlling criterion for the allocation of power between the appellate court and the trial judge. To say the key difference between a question of...