Canadian courts routinely certify the interpretation of contracts as common issues in class actions. Following the Supreme Court of Canada’s recent decision in Sattva Capital Corp v Creston Moly Corp, however, this practice may come into question. Though Sattva was not a class action, it may nevertheless open the door to arguments that contractual interpretation raises individual variability and should not be certified as a common issue.

Sattva Changed The Law Of Contractual Interpretation

Traditionally the interpretation of a contract was treated as a question of law. In Sattva, however, the Supreme Court explained that contractual interpretation actually raises issues of mixed fact and law. This mattered in Sattva because it involved an appeal from an arbitral award. Under the B.C. Arbitration Act, appeals are limited to questions of law. As the appeal was based on contract interpretation – which is not a question of law – there could be no appeal. (For more information, see Julius Melnitzer’s article in Law Times, “SCC issues ‘big change’ to contract law“.) 

The Court in Sattva held that contractual interpretation raises questions of mixed fact and law because of the role of “surrounding circumstances” in the interpretative process. The modern approach to reading contracts is to interpret the words of the contact in light of evidence of the background facts and other surrounding circumstances. Contracts are not to be interpreted in a vacuum. According to Sattva, this generally makes it difficult to separate the legal aspects of contractual interpretation from the factual. For more on this implication of Sattva, see our Osler Update.

Do “Surrounding Circumstances” Raise Common Issues?

Proposed class actions will only be certified if they raise a least one common issue that can be answered on a class-wide basis. In other words, there must be at least one issue of fact or law which, if resolved for the representative plaintiff, will avoid duplication for the rest of the class.

Under the traditional approach to contractual interpretation where the exercise was seen as purely legal, it was easier to certify the interpretation of a contract as a common issue, particularly if the agreement was a standard form agreement. See for example Lam v University of British Columbia. Where an agreement has the same meaning for all readers, determining that meaning for one putative class member should advance the litigation for all other class members.

It remains to be seen whether the Supreme Court’s emphasis on “surrounding circumstances” in Sattva will impact this approach. Not only does Sattva underscore the importance of “surrounding circumstances,” but it also shows how highly individualized those circumstances can be. Indeed, the “nature of the evidence that can be relied upon under the rubric of ‘surrounding circumstances’ will necessarily vary from case to case.” It is quite possible for two contracts to have the same words but different meanings when read in light of the broader facts.

Even in cases of standard form contracts, in the right circumstances, it could be argued that contractual interpretation is quintessentially an individual issue. To interpret the contract for the representative plaintiff, the trial judge may need to assess all of the surrounding facts applicable to that particular contract. This will not necessarily advance the litigation for any other potential class member. It remains to be seen how much variation in the surrounding circumstances is needed before a standard form or similar contract does not give rise to a common issue.