In RBC Dominion Securities Inc. v. Crew Gold Corporation ("Crew Gold"), the Ontario Court of Appeal reaffirmed a variety of fundamental contractual interpretation principles, including the roles of contextual interpretation, objective evidence and surrounding circumstances, and commercial reasonableness.

At issue in Crew Gold was RBC Dominion Securities' (the "FI") entitlement to a success fee under an agreement with Crew Gold Corporation ("Crew") for the provision of investment banking services (the "Agreement"). Under the Agreement, a success fee became due to the FI at the completion of a "transaction", which was defined to include (i) a sale of all or a substantial portion of the shares, business or assets of Crew to a third party; (ii) an investment by a third party in Crew that results in a change of control of Crew; or (iii) an amalgamation, arrangement or other business transaction involving Crew and a third party to effect such a sale or disposition.

During the term of the Agreement, Crew was the subject of a takeover that neither Crew nor the FI had anticipated. The issue between the parties therefore became whether the FI was entitled to its success fee in respect of any or all of the transactions involved in the takeover, despite the fact that the FI had not participated in them in any way.

The trial judge analyzed the plain language of the agreement, and concluded that the FI was not intended to receive a success fee unless there was a causal link between its activities and the completed transaction. The trial judge also reviewed the factual matrix, and found that the entire purpose of the FI's strategy for Crew was to maximize shareholder value by rolling out a process for the sale of Crew's assets or control shares, which would not have included the takeover. He also found that the FI never spoke of the possibility of a third party purchase.

On appeal, the FI argued that the trial judge made three extricable errors of law, by: (i) failing to consider the plain words of the agreement in the context of the contract as a whole; (ii) failing to correctly consider the objective evidence and surrounding circumstances of the agreement; and (iii) failing to consider the commercial reasonableness of the interpretation of the agreement.

With respect to the FI's allegation that the trial judge failed to consider the context of the contract as a whole, the Ontario Court of Appeal held that the trial judge's finding that a causal link was required for the FI to be entitled to a success fee was a reasonable interpretation, and that he arrived at that conclusion after considering the specific words at issue in the context of the agreement as a whole. Accordingly, the Court found that the trial judge made no extricable error of law.

With respect to the FI's contention that the trial judge failed to consider the objective evidence of the surrounding circumstances, the Court found that there was no evidence that the trial judge relied on the parties' subjective intentions. The Court also found that the trial judge's reference to the conduct of the parties following the execution of the contract was not considered in his interpretation of the contract. Therefore, the Court held that the trial judge made no extricable error of law.

Lastly, with respect to the FI's argument that the trial judge failed to consider the commercial reasonableness of the interpretation of the agreement, the Court found that the trial judge did not need to analyze the FI's arguments under a separate point to avoid this error. The Court held that the trial judge considered the objective circumstances and factual matrix surrounding the agreement, which speak to the commercial context, and that his interpretation was not commercially unreasonable. The Court also noted that the FI's interpretation of the agreement would have resulted in them receiving a significant windfall, which itself did not make commercial sense.

While this case does not move the law in a significant way, it does provide certainty regarding the proper approach to be taken to contextual interpretation of a contract, the consideration of objective evidence of the surrounding circumstances of a contract, and the interpretation of the commercial reasonableness of a contract. This clear case from the Court of Appeal should provide assistance to financial institutions of all kinds in litigation involving contractual interpretation disputes.