What is interesting about the decision is that the Supreme Court has, I hope, finally adopted a point of view towards contractual interpretation which focuses on the reasonable expectations of the parties.  Wagner J., for the majority, concludes his reasons for judgment by saying:

 

[95]      As outlined above, the language of the Exclusion Clause, read in light of the Policy as a whole, does not provide a clear answer to the question raised before us.  That said, the parties’ reasonable expectations, informed largely by the purpose of builders’ risk policies, point to the faulty workmanship exclusion serving to exclude from coverage only the cost of redoing the faulty work. This interpretation aligns with commercial realities and is consistent with prior jurisprudence. In the circumstances of this case, the cost of redoing the faulty work is the cost of recleaning the windows ― both parties agree that the recleaning falls under the Policy’s “cost of making good faulty workmanship” exclusion. The Insureds, however, have met their onus of demonstrating that the cost of replacing the damaged windows is covered under the “resulting damage” exception to that exclusion.

 

Canadian courts of appeal were in open revolt over Sattva Capital Corp. v. Creston Moly Corp. — essentially refusing to follow it — and many sought to get at least one decision out before Ledcor Construction was decided.  I can only hope that the scope of Sattva Capital, notwithstanding what Cromwell J. said in his dissent, will now be very limited.

 

The problems that the Supreme Court has had with contractual interpretation are quite extraordinary.  I don’t think that Ledcor Construction has laid them all to rest — there is, for example, still far too much attention paid to the role of “ambiguity”, visible in what Wagner J. said, above.  The decisions, in particular, of the Ontario Court of Appeal on interpretation have generally been far better.  It would also have been much more satisfying if the Supreme Court had, for example, considered Rainy Sky S. A. v. Kookmin Bank, [2011] UKSC 50, para, 25.

 

Angela Swan

 

 

 

Dear Colleagues:

 

Those of you interested in contractual interpretation will be interested in the SCC’s decision in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37. In Ledcor, the court found that the interpretation of a standard form contract should be recognized as an exception to the Court’s holding in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 that contractual interpretation is a question of mixed fact and law subject to deferential review on appeal. The court said this difference in treatment was justified on the grounds: (1) that the factual matrix carries less weight in cases involving standard form contracts as the parties do not specifically negotiate the terms and (2) that establishing the proper interpretation of a standard form contract amounts to establishing the correct legal test since the interpretation will be applied in future cases involving identical or similarly‑worded provisions. Justice Cromwell, although concurring in the end result, would have held that a trial judge’s interpretation of the contract generally gives rise to a mixed question of law and fact and should be reviewable on appeal only for palpable and overriding error as per Sattva.

 

The question for resolution in Ledcor was whether a builders’ risk insurance policy covered damage done to a building’s windows by the cleaners hired to clean them during construction. The cleaners used improper tools and methods in carrying out their work, scratched the windows and as a result, the windows had to be replaced. The insurer denied coverage on the basis of an exclusion contained in the policy for the “cost of making good faulty workmanship”. The court held that the application of the general principles of contractual interpretation lead to the conclusion that the exclusion clause excluded only the cost of redoing the faulty work, that is, the cost of recleaning the windows. The damage to the windows and therefore the cost of their replacement was covered.

 

Happy Reading,

 

 

Jason Neyers
Professor of Law
Faculty of Law
Western University
Law Building Rm 26
e. jneyers@uwo.ca
t. 519.661.2111 (x88435)