The Supreme Court of Canada (SCC) has recently provided key insight into the interpretation of releases in Corner Brook (City) v Bailey.[1] While the decision is interesting from the perspective of interpretation, the practical value of the decision lies in its discussion of how lawyers ought to draft releases.
Background [2]
Corner Brook involves a motor vehicle accident between the respondent and a City of Corner Brook employee. The employee sued the respondent (the “First Action”). In a separate action, the respondent sued the City (the “Second Action”). The respondent and the City settled the Second Action, but the respondent subsequently commenced a third-party claim against the City in the First Action. The settlement of the Second Action included a release that discharged the City from all liability relating to the motor vehicle accident.
General contract principles govern releases
In Corner Brook, the SCC held that releases are contracts and therefore replaced the now outdated Blackmore Rule in favour of the rule in Sattva Capital Corp v Creston Moly Corp.[3] Although this change appears significant, it does not substantially alter the law. The SCC stresses that interpreting releases via Sattva will lead to the same result as doing so via the Blackmore Rule.[4] Sattva allows courts to interpret contracts by considering both the words of the contract and the objective evidence showcasing the “surrounding circumstances” of the parties to the contract.[5] The Blackmore Rule merely provided an exception to utilize “surrounding circumstances” in release interpretation, prior to all contracts being interpreted according to both their words and “surrounding circumstances”.[6] Therefore, we now have one line of authority for the interpretation of releases, instead of two lines of authority that are functionally identical.
How to draft releases (according to the SCC)
As alluded to above, the key value of the case lies in the SCC’s comments on drafting releases to withstand judicial scrutiny.
Releases are interpreted according to Sattva to answer the question of whether the claim at issue is the type of claim that the parties intended the release to cover.[7] Although releases are often interpreted narrowly, Corner Brook clarifies that there is no rule that mandates this narrow interpretation.[8] Releases are interpreted narrowly because of the way they are drafted. If a release is interpreted narrowly to the dismay of its drafter, then the release has been drafted contrary to Sattva’s interpretation principles.[9] Improper drafting boxes the release into a one-dimensional interpretation through either the words of the release or its surrounding circumstances, but not both.[10]
The court cautions that an overly broad release is likely contrary to Sattva’s interpretation principles.[11] A release can be overbroad in two ways: i) the words of the release are not reasonably limited to the circumstances; and ii) the release improperly attempts to account for unknown claims.[12] In the former case, Sattva may use the surrounding circumstances to limit overbroad language that attempts to “prevent the releasor from suing the releasee for any reason, forever”.[13] This limiting of overbroad language may cause intended broad release provisions to be interpreted as unintended and unenforceable. In the latter case, Sattva may use the surrounding circumstances to limit the release’s application to known claims.[14] This limiting of the release to known claims will render the releasor liable for future unknown claims.
To avoid both characterizations of overbreadth, the drafter ought to limit the application of the release to a specific subject matter and timeframe.[15] Moreover, the drafter also ought to explicitly state whether unknown claims are covered.[16] Therefore, releases that are enforceable in their entirety will contain language that applies the release to specific services, relationships, property, or disputes, as well as to claims that are both known and unknown until a specified date. For example, releases can be limited to any and all claims arising out of the dissolution of a partnership or any and all claims arising out of the provision of services to one entity by another.[17]
The SCC also adopts plain language principles regarding drafting releases. It is not necessary to create lengthy lists of all possible future claims that the release may cover.[18] Rather, the SCC holds that the language “any and all claims” covers all possible claims except for those that are specifically excluded.[19] The language “including known and unknown claims” extends this coverage to all unknown claims.[20]
Key takeaways and tips for drafting fully enforceable releases
In Corner Brook, the SCC provides the following key tips for drafting fully enforceable releases:
- Draft as narrowly as the circumstances and their related subject matter permit
Language in releases should be limited to the surrounding context of the claim, services, relationships, property, or disputes in issue. It should also be limited to the specific area of law that governs the claim in issue. The releasor should only be barred from taking further action against the releasee regarding the claim in issue and any directly related claim.
2. Include a time limit
Do not extend the release’s application to the end of time, even if its consequences are limited to the claim in issue and the claim’s related subject matter. Specify a date after the expiry of the relevant limitation periods that the release will extend to.
3. Explicitly contemplate unknown claims
If you want to cover unknown claims that may arise in the future, then this must be clearly stated in the release. Be straightforward, using wording such as “including known and unknown claims”.
4. Apply the same tips regarding known claims to unknown claims
Releases covering unknown claims should also be drafted narrowly according to the circumstances and subject matter of the claim, as well as with an explicit time limit.
5. Do not list all possible known and unknown claims
It is unnecessary to provide a list of all possible claims. Excessive and lengthy releases are discouraged. Language such as “any and all claims” is taken on its face to encompass all possible claims. Although this will not likely sink the enforceability of your release, you may be in trouble if you create a list and forget to use language such as “including but not limited to”. Avoiding unnecessary lists also avoids the unnecessary risk of limiting the coverage of your release.
[1] Corner Brook (City) v Bailey, 2021 SCC 29 at para 1 [Corner Brook].
[2] Ibid at para 2.
[3] Ibid at paras 19, 28-31.
[4] Ibid at paras 28-31, 33-34.
[5] Ibid at para 20.
[6] Ibid at paras 21-23.
[7] Ibid at para 43.
[8] Ibid at para 31, 38.
[9] Ibid at paras 35.
[10] Ibid.
[11] Ibid at para 38.
[12] Ibid at paras 36-38.
[13] Ibid at paras 36, 38.
[14] Ibid at paras 38-39.
[15] Ibid at paras 40-41.
[16] Ibid at para 41.
[17] Ibid at paras 40, 42.
[18] Ibid at paras 41-42.
[19] Ibid at para 42.
[20] Ibid.
