A release is a type of contract often used when two or more parties reach a settlement. The purpose of the release is to provide finality and a degree of certainty to the parties that a matter is closed and will not be opened up again in the future. The person giving the release (the “Releasor”) contracts with the person receiving the release (the “Releasee”) to give up certain rights that the Releasor has, often the right to bring legal action against the Releasee. In turn, the Releasee often pays the Releasor a sum of money.
Releases have been a legal tool for over 150 years. However, because a release is a contract, the changing law of contractual interpretation impacts the way in which releases are interpreted. While new rules of contractual interpretation are formed, old rules often linger. Such a scenario can lead to confusion in releases about what they apply to, when, and for how long. In Corner Brook (City of) v Bailey (Corner Brook) the Supreme Court of Canada (“SCC”) sought to clarify the law surrounding the contractual interpretation of releases.
Mary Bailey (“Mary”) struck David Temple (“David”), an employee of the City of Corner Brook (“City”), with her husband’s car (Corner Brook at para 2). While David sued Mary, Mary also sued the City (Corner Brook at para 2). Mary and the City settled, and Mary agreed to release the City from liability relating to the accident and discontinued her action (Corner Brook at para 2). However, some years later, Mary brought a third-party claim against the City for contribution or indemnity, however the City said the release Mary had signed barred her claim (Corner Brook at para 2). Mary alleged it did not (Corner Brook at para 2).
One of the issues the Court grappled with was “What is the law governing the interpretation of releases?”
Back in 1870 the words of a contract were often given their “black letter” meaning, and this caused problems for releases, which are often worded broadly (Corner Brook at para 18). Therefore, Lord Westbury writing for the House of Lords in the 1870 decision London and South Western Railway Co. v Blackmore stated the principle on the interpretation of releases which came to be known as the “Blackmore Rule.”
The Blackmore Rule held that the words in a release are limited to the things that were in the contemplation of the parties at the time the release was given; and that the parties could not be considered bound by the release regarding disputes or questions that had not arisen (Corner Brook at para 21).
In other words, “a release cannot apply, or be intended to apply to circumstances of which a party had no knowledge at the time he executed it” (Corner Brook at para 22).
However, the Blackmore Rule was not as stringent as might literally be expected. The rule was interpreted narrowly in Canada to not allow the subjective intention of the parties to be considered and did not preclude parties from releasing unknown claims (Corner Brook at paras 25-26).
More recently in Canada, the SCC set out the current approach to contractual interpretation in Sattva Capital Corp v Creston Moly Corp, 2014 SCC 53 (“Sattva”). In Sattva the SCC directed courts to “read the document 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” (Corner Brook at para 20).
The decision the Court needed to make in this case was whether there was any room left for the Blackmore Rule now that they had articulated a comprehensive approach to contractual interpretation in Sattva.
The Court compared the Blackmore Rule with the modern approach laid out in Sattva and found that the problem that the Blackmore Rule was created to solve no longer existed. The Blackmore Rule was created to address the problem of “black letter” interpretations of release clauses, some of which could have been interpreted to release a releasee from all liability, forever. The Blackmore Rule was created to temper such interpretations by limiting the scope of releases to what was in the contemplation of the parties at the time of contract formation. However, because Sattva directs courts to consider the “surrounding circumstances known to the parties” at the time of contract formation, the Court found that the problem of “black letter” interpretations no longer exists and therefore the Blackmore Rule no longer serves a purpose (Corner Brook at para 33).
The Court reasoned that the function and usefulness of the Blackmore Rule has been entirely subsumed by its approach set out in Sattva (Corner Brook at para 33). Therefore, there is no longer any need for special rules of interpretation.
Corner Brook reaffirmed the supremacy of the Sattva approach to contractual interpretation. The Court concluded that there is “no special rule of contractual interpretation that applies only to releases” (Corner Brook at para 34). Instead, releases are to be interpreted like any other contract – that is, “read the document 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” (Corner Brook at para 20).
Note: This article provides general commentary and is in no way intended to replace the need to consult with a legal professional concerning the specific circumstances of your situation. This article should not be construed or relied upon as legal advice.