Personal Injury News
By: Andrew Spurgeon
Whenever a personal injury action resolves, the parties exchange releases. Usually in the negotiations between parties, releases are treated as an afterthought. Frequently, the language in releases is not given much consideration and counsel for the plaintiff and defendant will simply agree that the release will be in a “standard form”. Often counsel for the defendant will supply counsel for the plaintiff with a draft release document to review. Plaintiff’s counsel will look it over to satisfy herself that there is nothing unusual or untoward about the release before it is given to the plaintiff to sign if that is the case.
It is a good idea, however, to view releases more critically. This is especially so given the recent Supreme Court of Canada case of Corner Brook (City) v. Bailey, 2021 SCC 29.
The facts of that case are pretty standard. On March 3, 2009, Ms. Bailey was driving a car owned by her husband on a road owned by the City of Corner Brook, Newfoundland. At that time, a gentleman named Mr. Temple, who was an employee of the City of Corner Brook, was engaged in road repair work on that roadway. Unfortunately, Ms. Bailey struck Mr. Temple.
Mr. Temple sued Ms. Bailey for damages due to injuries suffered in the collision. Likewise, Ms. Bailey sued Mr. Temple’s employer, the City of Corner Brook, for injuries she suffered in the collision and for property damage to the car Ms. Bailey was driving.
Ms. Bailey was served with Mr. Temple’s claim on March 24, 2011. She soon thereafter provided the claim to her auto liability insurer. Five months later, Ms. Bailey’s counsel in her plaintiff claim against the City of Corner Brook initiated negotiations with counsel for the City of Corner Brook with a view to settling her claim. Ms. Bailey’s lawyer suggested a settlement figure of $10,000. Counsel for the City of Corner Brook responded by rejecting the proposition that the City could in any way be held liable for the collision. However, counsel for the City advised that the City was “aware that all litigation carries risks and costs” and was therefore be prepared to offer $7,500 to resolve the matter contingent upon a discontinuance of the action and execution of a full and final release to the City’s satisfaction.
On August 16, 2011, counsel for Ms. Bailey in her plaintiff action communicated Ms. Bailey’s acceptance of the City’s offer to settle. Ms. Bailey and her husband signed a full and final release on August 26, 2011. The release said in part:
. . . the [Baileys], . . . hereby release and forever discharge the [City, its] servants, agents . . . from all actions . . . claims and demands whatsoever, past, present or future, . . . foreseen or unforeseen . . . and all demands and claims of any kind or nature 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 [Bailey Action].
Despite the terms of this release, counsel for Ms. Bailey as defendant in the action brought by Mr. Temple, on March 16, 2016, issued a third party claim against the City of Corner Brook seeking contribution and indemnity for any damages she may be liable to pay Mr. Temple.
The City of Corner Brook successfully moved for a dismissal of the third party claim in a summary trial on the issue. The third party claim was dismissed in 2018 by the trial judge based on two points:
First, the court held that a release is a contract – like any other contract – and that the language in the release on its face clearly covered a release of rights in respect of the third party claim.
Second, despite this, the case of London and South Western Railway v. Blackmore suggests that the general words in a release are limited to that thing or those things which were specially in the contemplation of the parties at the time the release was given.
In respect of the second proposition, the court determined that a consideration of the circumstances around the signing of the release was warranted. Notwithstanding, the trial judge held that the special factual circumstances of the signing of the release demonstrated that it was within the contemplation of the parties that a third party claim against the City of Corner Brook in the Temple action against Bailey, was contemplated and thereby enforceable in barring the third party claim.
Ms. Bailey appealed successfully. The Court of Appeal commented that the principle in the Blackmore case, which allowed for a broader factual consideration of the circumstances of the negotiations and intentions of the parties, had been subsumed over time into the principles annunciated in the case of Sattva Capital Corp. v. Creston Moly Corp., where courts are to read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of the formation of the contract.
Given this, or perhaps in spite of this, the Court of Appeal concluded that the trial judge had got it wrong. The Court of Appeal concluded that there appeared to be a contradiction between the language of the release and the intention of the parties. The Court of Appeal based this conclusion on the context of the negotiations and the exchange of correspondence between counsel for the parties, which was suggestive of the proposition that the only thing Ms. Bailey was releasing was her direct rights to compensation from the City of Corner Brook for her personal losses. Indemnification for liability to Mr. Bailey was not contemplated, in the view of the Court of Appeal, regardless of the language in the release. The Court of Appeal reinstated the third party claim against the city in Mr. Temple’s action against Ms. Bailey.
The Supreme Court of Canada allowed the appeal of the City of Corner Brook and reinstated the original order of the trial judge, dismissing Ms. Bailey’s appeal. In so doing, the Supreme Court asserted the following propositions:
Releases are contracts like any other contract and general principles of interpretation apply. There is no principled reason to have a rule of interpretation for releases that is any different than from contracts generally.
The principle in Blackmore that offered an exception to the parole evidence rule for releases has been completely eclipsed by the Sattva case.
Going forward, the general principle of interpretation that courts are to follow in all contracts, including releases, is that they are to:
Read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract.
Remember that the meaning of words is often derived from a number of contextual factors, including the purpose of the agreement and the nature of the relationship created by the agreement. However, though evidence of surrounding circumstances may be relied upon to interpret a contract, they are not to overwhelm the text and allow a court to deviate from the text such that it is effectively creating a new agreement.
The court should not delve into evidence of the subjective intention of parties at the time they entered contracts. Rather, in analyzing context, courts should be interested only in objective evidence of the background facts at the time of execution of the contract in respect of knowledge that was reasonably, or ought reasonably to have been, in the knowledge of both parties at or before the date the contract was entered.
Ultimately, looking at the language used by the trial judge, the Supreme Court concluded that the trial judge’s interpretation of what was “contemplated” by the parties in signing the release was synonymous with the language in the Sattva case and his findings fit squarely within that frame of analysis.
Despite the assertion of general applicability of the Sattva case to releases, the Supreme Court acknowledged that there are limits in contextual analysis. Because of the peculiar context in which releases are signed, there will be cases where parties seeking to effect a broad release in response to potential unknown and unspecified claims post facto come across a claim which truly could not have been in the contemplation of the parties as one that was being released.
However, in the circumstances of the Corner Brook case, a third party claim from Ms. Bailey against the City for contribution and indemnity for the injuries of Mr. Temple, was clearly in contemplation of the parties. It was something (given that she had been sued by Mr, Temple) that she and her lawyer ought reasonably to have known about as a possible claim and quite reasonably falls within the plain language and grammatical meaning of the release signed by Ms. Bailey.
What we should all be cognizant of, however, is that in the world of liability insurance, insurers effectively are the alter-egos of their insureds as litigants. Ms. Bailey, in her personal capacity through her personal lawyer, effectively signed away a right of her insurer, without apparent consent of her insurer, to contribution and indemnity for loss.
In the future, plaintiff lawyers who act for plaintiffs who themselves are also defendants (or potentially defendants) should be careful not to have their clients sign releases which might release parties from liability without consent of their liability insurers. This of course opens up a vast can of worms which will need to be litigated in some case in the future.
Andrew J. Spurgeon is a partner at Ross and McBride LLP. He is also an Elected Bencher of the Law Society of Ontario, and the Chairman of the Board of Directors LawPRO, which is the sole insurance company providing primary liability coverage to all 28,000 lawyers in private practice in Ontario.
He can be reached at:
Ross & McBride LLP
1 King St W, Hamilton, ON
Email: [email protected]