The Court of Appeal for Ontario has held that appeal courts will review decisions interpreting standard form contracts on a correctness standard, as opposed to the more deferential standard of review of reasonableness. 

The decision means parties to standard form contracts may have increased chances of successfully appealing contractual interpretations made by lower court judges than parties to negotiated contracts. 

BACKGROUND

In MacDonald v. Chicago Title Insurance Company of Canada (MacDonald), a couple purchased a multi-storey home that was insured by a title policy from Chicago Title Insurance Company of Canada. Years later, the couple discovered that load-bearing walls had been removed during renovation work done by a previous homeowner, making the second floor of the home unsafe. 

The couple subsequently undertook renovations to the home, as required by the City of Toronto. They made a claim under the title policy for the costs of the repairs. Chicago Title denied the claim on the grounds that the couple lacked coverage and/or that the claim was excluded under the terms of the policy.

On a motion for summary judgment, a judge ruled in favour of Chicago Title and determined that the repairs to the property were not covered by the title policy. 

COURT OF APPEAL DECISION

The Court of Appeal overturned the decision of the motion judge and determined that the policy did in fact cover the damage to the property, entitling the couple to coverage and indemnification.

A critical issue in the case was whether the Court of Appeal’s consideration of the motion judge’s interpretation of the policy was subject to a “reasonableness” or “correctness” standard of review. Under the former standard, a reviewing court is limited to determining whether a judge’s contractual interpretation falls within a reasonable range of alternatives, making it more difficult for a party to succeed on appeal. Under the latter standard, a reviewing court may substitute its own “correct” interpretation of a contract, making it easier for a party to challenge a judge’s interpretation of a contract.

The Court of Appeal held that standard form contracts will be reviewed on a correctness standard. In so doing, the court distinguished the Supreme Court of Canada’s decision in Sattva Capital Corp. v. Creston Moly Corp. (Sattva). In Sattva, the Supreme Court held — in the context of commercial arbitration — that interpretations of a contract will generally be the more deferential review standard of “reasonableness.” Further discussion of the Sattva decision can be found in our August 2014 Blakes Bulletin: Un-appealing: Supreme Court of Canada Limits Appeals from Arbitrators.

In Sattva, the Supreme Court had reasoned that the reasonableness standard is most often appropriate for review of decisions interpreting contracts because the interpretation of individual contracts are often fact-specific and generally do not have implications other than for the parties to the dispute.

In MacDonald, the Court of Appeal held that the rationales relied upon in Sattva do not apply in respect of standard form insurance contracts. In other words, since standard form contracts are not fact-specific and apply broadly, there is no good reason for reviewing courts to be deferential to the determinations made by lower court judges on how to interpret these contracts. To the contrary, there is a need for appellate court oversight of such interpretations to ensure consistency in the law.

IMPLICATIONS

Subject to any further appeal, the MacDonald case serves to limit the application of the Supreme Court’s decision in Sattva. As the law stands in Ontario, if a party can demonstrate that a contract is significant for individuals beyond the parties to the dispute, there may be a greater chance of successfully appealing a decision involving that contract’s interpretation.