RELEASES: CASE LAW AND RECOMMENDATIONS
By: Hassan Chaudhary
The Supreme Court of Canada’s decision in Corner Brook (City) v. Bailey (“Bailey”)1 provides guidance on the interpretation of releases and, in turn, recommended practices when drafting releases.
As releases are drafted by both barristers and solicitors, the decision carries importance to the legal community in general.
In the above-noted case, Mary Bailey (“Mary”) had struck David Temple (“David”), an employee of the City of Corner Brook (the “City”), while driving her husband’s vehicle.
David sued Mary. In a separate action Mary and her husband sued the City (the “Bailey Action”).
The Bailey Action as against the City settled. The settlement involved Mary and her husband releasing the City from liability. Specifically, the release stated that Mary and her husband would,
“forever discharge the [City] … from all actions … past, present or future
… foreseen or unforeseen … whatsoever arising out of or relating to the accident which occurred on or about March 3, 2009, and without limiting the generality of the foregoing from all claims raised or which could have been raised in the [action].”
Years later, Mary brought a third party claim as against the City for contribution or indemnity in the action brought as against her by David. In response, the City brought an application claiming that the release signed by Mary, in favor of the City, barred the third party claim.
2. Judicial History & Decision
The trial judge, at the Newfoundland and Labrador Supreme Court, ruled in favor of the City.2 The provincial Court of Appeal effectively reversed the trial judge’s decision.3 The Supreme Court of Canada unanimously reinstated the order of the trial judge.
3. SCC Reasoning & Analysis
The Blackmore Rule, arising from an 1870 House of Lords decision, established a particular approach to the interpretation of releases. The Blackmore Rule was adopted in Canada and when applied resulted in a narrow interpretation of a release.
Justice Malcolm Rowe, on behalf of the Supreme Court of Canada, wrote the decision and confirmed that,
(a) releases were contracts;
(b) there was no reason to have a special rule, such as the Blackmore Rule, applicable only to releases;
(c) that the Blackmore Rule had been overtaken by the general principles of contract law set out in Sattva Capital Corp. v. Creston Moly Corp. (“Sattva”),4 which directs courts to read the contract as a whole but also take into context the surrounding circumstances known to the parties at the time of the formation of the contract;
(d) courts may interpret releases narrowly when the release is expressed in overly broad terms,
i. which if interpreted literally, could prevent the releasing party from suing the released party for any reason, forever. Such extreme consequences are not what the parties may have intended when taking into context the surrounding factors; and
ii. to account for risks that at the time of the contract are unknown, as such practice could give rise to disagreement as to what was truly intended.
Following the analysis, Justice Rowe confirmed that the release signed by Mary covered the third party claim and the surrounding circumstances supported enforcing the release.
The Bailey decision confirms that the ultimate question, when interpreting a release in the face of a potential claim, is whether the claim is of the type that is to be released. In making that determination, courts will apply the principles laid out in Sattva, namely they will examine the wording and surrounding circumstances of the release in each case.
Justice Rowe also re-inforced that,
(a) a sensible approach to drafting releases would be for the “drafter of a release [to] consider wording that makes clear whether the release will cover unknown claims and whether the claims must be related to a particular area or subject matter.”; and
(b) “releases that are narrowed to a particular time frame or subject matter are less likely to give rise to tension between the words and what the surrounding circumstances indicate the parties objectively intended.”
Based on the foregoing, when drafting a release, it is recommended to narrow the time frame or the subject matter to which the release is in reference to and confirm whether the release covers unknown claims. n
Hassan is an Associate with Ross & McBride LLP in the Business Law and Real Estate Law Groups.
He can be reached at:
1 King St. W., 10th Floor
Email: [email protected]
1 2021 SCC 29
2 2018 NLSC 177
3 2020 NLCA 3 4 2014 SCC 53
4 2014 SCC 53