Mosten Investment LP Appellant/Respondent on Cross-Appeal (Applicant) v. The Manufacturers Life Insurance Company o/a, 2021 SKCA 36

Court of Appeal for Saskatchewan Citation: Mosten Investments LP v The Manufacturers Life Insurance Company (Manulife Financial) , 2021 SKCA 36 Date: 2021-03-10 Docket: CACV3407 Between: Mosten Investment LP Appellant/Respondent on Cross-Appeal (Applicant) And The Manufacturers Life Insurance Company o/a Manulife Financial Respondent/Appellant on Cross-Appeal (Respondent) Docket: CACV3408 Between: Atwater Investment LP Appellant/Respondent on Cross-Appeal (Applicant) And BMO Life Assurance Company Respondent/Appellant on Cross-Appeal (Respondent) Docket: CACV3409 Between: Ituna Investment LP Appellant/Respondent on Cross-Appeal (Applicant) And Industrial Alliance Insurance and Financial Services Inc.

Respondent/Appellant on Cross-Appeal (Respondent) Before: Caldwell, Barrington-Foote and Tholl JJ.A.

Disposition: Appeals allowed in CACV3407 and CACV3408; Appeal dismissed in CACV3409; Cross-Appeals allowed in part Written reasons by: The Court On appeal from: 2019 SKQB 75 , 2019 SKQB 76, 2019 SKQB 77, Saskatoon Appeals heard: January 15, 16 and 17, 2020 Counsel: Ronald Miller, Q.C. and Amanda Quayle, Q.C. for Mosten Investment LP Linda Plumpton, Toshach Weyman and Winston Gee for The Manufacturers Life Insurance Company o/a Manulife Financial Gordon Kuski, Q.C., Amanda Quayle, Q.C. and William Lane for Atwater Investment LP Munaf Mohamed, Q.C. and Christine Viney for BMO Life Assurance Company Shaunt Parthev, Q.C. and Janelle Souter for Ituna Investment LP Patricia Jackson, David Outerbridge, Lara Guest and Shalom Cumbo-Steinmetz for Industrial Alliance Insurance and Financial Services Inc.

TABLE OF CONTENTS I. INTRODUCTION .. 1 II.

INTERPRETATION .. 3

A. The Parties and their Appeals and Cross-appeals . 3 B. Reference Points . 3 C. The Nature of a ULP . 5 D. The Dispute that Underpins the Appeals . 7 III. ISSUES . 8 A. CACV3407 – Mosten Appeal 8 B. CACV3407 – Manulife Cross-appeal 8 C. CACV3408 – Atwater Appeal 9 D. CACV3408 – BMO Life Cross-appeal 9 E. CACV3409 – Ituna Appeal 9 F. CACV3409 – Industrial Alliance Cross-appeal 10 IV. STANDARDS OF REVIEW ... 10 A. In General 10 B. In Contract

Interpretation . 11 1. The Parties’ Positions . 11 2. The Supreme Court Jurisprudence . 12 3. Precedential Value . 14 C. In the Exercise of Judicial Discretion . 24 D. In Evidentiary Matters . 25 V. THE SATTVA APPROACH .. 25 A. Consensus Ad Idem .. 25 B. The Factual Matrix . 30 C. Legislation and Terms of Art 35 VI. ANALYSIS . 40 A. Introduction . 40 B. Issues Common to All Three Matters . 41 1. Evidentiary Issues . 41 2. Case Law Interpreting ULPs . 43 3. Terms of Art: Premium and Payment of Premiums . 48 4. The Sattva Approach and Insurance Law Principles . 54 C. Application of the Law in Each Appeal 55 1.

CACV3407 – Mosten v Manulife . 55 a. Relief Sought at the Court of Queen’s Bench . 55 b. Relief Denied by the Judge . 57 c. The de Bruin ULP . 62 d.

Interpretation of the de Bruin ULP . 63 e.

Interpretation as a Harmonious Whole . 71 f. Declarations Granted by this Court 76 2. CACV3408 – Atwater v BMO Life . 77

a. Relief Sought at the Court of Queen’s Bench . 77 b. Relief Denied by the Judge . 79 c. The Walkom ULP . 81 d.

Interpretation of the Walkom ULP . 92 e. Declarations Granted by this Court 94 3. CACV3409 – Ituna v Industrial Alliance . 95 a. Relief Sought at the Court of Queen’s Bench . 95 b. The Term Allocation Contravention . 97 c. The Zinkhan ULP and its

Interpretation . 101 d. Disposition by this Court 114 D. The Cross-Appeals on the Regulation . 114 1. Background . 114 a. Context 114 b. The Regulation , Insurance Act and

Interpretation Legislation . 119 c. Principles of Statutory

Interpretation . 120 d. Decisions . 123 2. Common Error in the Decisions . 125 a. Vires . 125 b.

Interpretation . 127 3.

Interpretation of the 2018 Regulation . 131 a. Not Declaratory . 133 b. Not Retroactive or Retrospective . 135 c.

Interpretation . 135 d. Statement of

Interpretation— 2018 Regulation . 152 4.

Interpretation of the 2020 Regulation . 152 a. Consequential Amendments . 153 b.

Interpretation . 153 c. Statement of

Interpretation— 2020 Regulation . 156 VII. CONCLUSION .. 156 The Court I. INTRODUCTION [ 1 ] This judgment addresses appeals and cross-appeals brought in respect of decisions of a Court of Queen’s Bench judge [Judge] in three separate Chambers applications in which he interpreted both a universal life insurance policy [ULP] and The Saskatchewan Insurance (Licence Condition) Amendment Regulations, 2018 , Sask Reg 75/2018 [ 2018 Regulation ]. In each case, an appellant brought an originating application pursuant to s. 11 of The Queen’s Bench Act, 1998 , SS 1998, c Q-1.01 , and Rule 3 -49(1)(

d) of The Queen’s Bench Rules , seeking a determination of the rights of the insured under a ULP issued or assumed by one of the respondent insurance companies. [ 2 ] The Judge heard the applications consecutively and rendered three separate but similar decisions: Ituna Investment LP v Industrial Alliance Insurance and Financial Services Inc. , 2019 SKQB 75 [ Ituna Decision ]; Mosten Investment LP v The Manufacturers Life Insurance Company o/a Manulife Financial , 2019 SKQB 76 [ Mosten Decision ]; and Atwater Investment LP v BMO Life Assurance

Company , 2019 SKQB 77 [ Atwater Decision ]. In each, the Judge dismissed the insured’s application for declaratory relief because the declarations sought were not supported on his

interpretation of the insurer’s ULP. The Judge also interpreted the 2018 Regulation as having “only prospective effect”, from which it may be inferred that the Judge found the 2018 Regulation did not interfere with the insured’s rights under a contract for life insurance that had been entered into prior to its enactment. [ 3 ] Each appellant appealed against the

interpretation of their ULP and each respondent cross-appealed against the

interpretation of the 2018 Regulation . Broadly speaking, the primary issue raised in the appeals relates to whether the Judge erred when he found the ULPs did not “provide for unlimited stand-alone investment opportunities within [a side account]” ( Mosten Decision at para 357 ; Atwater Decision at para 356 ; and Ituna Decision at para 299). There are secondary issues in each appeal, some relating to whether an insurer is entitled, on its own initiative, to refund or reject monies tendered by an insured for investment under the ULP in question.

These issues also give rise to allegations in the appeals and cross-appeals that the Judge erroneously ruled certain evidence was or was not relevant to the

interpretation of a ULP. The principal issue in the cross-appeals is whether the Judge erred when he found the 2018 Regulation did not affect the ULPs at issue because they had been entered into prior to its enactment. [ 4 ] The appeals also raise fundamental questions as to the proper way to approach the

interpretation of a contract and as to the standard of appellate review applicable in such cases. While acknowledging that the law in this regard is not without its controversy, we find the Supreme Court of Canada jurisprudence sets forth a single, comprehensive approach to contract

interpretation and identifies discernable principles for selecting the applicable standards of appellate review in cases of contract

interpretation. On that basis, we find that the correctness standard of appellate review applies to the issues of contract

interpretation raised in these appeals. [ 5 ] Applying the appropriate standards of review, having reviewed the record of each application in the Court of Queen’s Bench and the Judge’s reasons for judgment in each application, and having considered the parties’ submissions in each of the appeals and cross- appeals, we: (

a) allow the appeal under CACV3407 between Mosten Investment LP [Mosten] and The Manufacturers Life Insurance Company o/a Manulife Financial [Manulife], set aside the Judge’s

interpretation of the ULP in that case, and interpret it as permitting unlimited, stand-alone investment within the side account; (

b) allow the appeal under CACV3408 between Atwater Investment LP [Atwater] and BMO Life Assurance Company [BMO Life], set aside the Judge’s

interpretation of the ULP in that case, and interpret it as permitting unlimited, stand-alone investment within the side account; (

c) dismiss the appeal under CACV3409 between Ituna Investment LP [Ituna] and Industrial Alliance Insurance and Financial Services Inc. [Industrial Alliance]; (

d) allow the cross-appeals in part, set aside the Judge’s

interpretation of the 2018 Regulation , and interpret and construe the 2018 Regulation , as well as s. 2-5.1 [ 2020 Regulation ] of The Insurance Regulations , RRS c I-9.11 Reg 1 [ Insurance Regulations ], as prospective legislation that is universally applicable to all licensed insurers in Saskatchewan from the date of its enactment; (

e) make no order as to costs in either this Court or in the Court of Queen’s Bench in the appeals and cross-appeals under CACV3407 and CACV3408; and (

f) order Ituna to pay Industrial Alliance’s costs in the Court of Queen’s Bench and on the appeal and cross-appeal under CACV3409. II.

INTERPRETATION A. The Parties and their Appeals and Cross-appeals [ 6 ] The appellants (cross-respondents) are Mosten in CACV3407, Atwater in CACV3408 and Ituna in CACV3409. When we refer to the Appellants in these reasons, it is a collective reference to Mosten, Atwater and Ituna, regardless of whether we are referring to an appeal or cross-appeal. [ 7 ] The respondents (cross-appellants) are Manulife in CACV3407, BMO Life in CACV3408 and Industrial Alliance in CACV3409.

A reference to the Respondents is a collective reference to Manulife, BMO Life and Industrial Alliance. [ 8 ] When referring collectively to the Appellants and the Respondents, e.g., when all of them agree on some point, we use the word parties ; however, we also use that word generically to refer to the parties to a contract, relying on context to indicate usage. When addressing the appeals, we refer to a specific appeal by the name of the Appellant, i.e., the Mosten Appeal , the Atwater Appeal or the Ituna Appeal . We refer to all of the appeals and cross-appeals collectively as these matters . B.

Reference Points [ 9 ] We refer to the Lieutenant Governor in Council for the Province of Saskatchewan as the Lieutenant Governor . Where there is no need to differentiate between the two regulations at issue in the cross-appeals, we use the word Regulation to refer to both the 2018 Regulation and the 2020 Regulation . [ 10 ] As noted, each appeal pertains to the

interpretation of a specific ULP, namely: (

a) In the Mosten Appeal, a ULP issued by Aetna Life Insurance Company of Canada [Aetna Life] on November 19, 1997, as

Policy No. F 2239527, insuring the life of Walter de Bruin and recording Dr. de Bruin as the applicant, insured and beneficiary and towhich Mosten later added Michael Hawkins as an insured life after acquiring Dr. de Bruin’s interests under the ULP [de Bruin ULP].Manulife acquired the rights, liabilities and obligations of Aetna Life under the de Bruin ULP in 2004. (

b) In the Atwater Appeal, two identical ULPs issued by AIG Life Insurance Company of Canada [AIG] (which was BMO Life’scorporate name prior to April 1, 2009), both issued on February 18, 2002, recording the applicant, the insured and the beneficiary as605945 Saskatchewan Ltd. [605945] (whose sole shareholder and officer was Conrad Walkom) and insuring the lives of Mr. Walkom andhis daughter, Brittany Walkom, under Policy 16551, and insuring the lives of Mr.

Walkom and his daughter, Shayla Walkom, underPolicy 13468 [because they are, for relevant purposes, identical, we refer to these two ULPs in the singular, as the Walkom ULP]. 605945assigned its interests under the Walkom ULP to Atwater on December 31, 2008. Atwater then added Mr. Hawkins as the life insured underthe Walkom ULP. (

c) In the Ituna Appeal, a “Flex Account” or “Special Flex 5” ULP issued by The National Life Assurance Company of Canada[National Life], a subsidiary of Industrial Alliance, on August 20, 1999, as Policy 4005565, recording the applicant, the insured and thelife insured as Fred Zinkhan and the beneficiary as Karen Zinkhan [Zinkhan ULP]. National Life transferred its business and assets,including the Zinkhan ULP, to Industrial Alliance in 2005. Mr. Zinkhan assigned the Zinkhan ULP to Ituna on March 19, 2009. Itunasubstituted Mr. Hawkins as the life insured under the Zinkhan ULP, effective September 11, 2011. C.

The Nature of a ULP [11] A ULP is a contract for life insurance that allows the insured to take advantage of accrual-tax exemption provisions under theIncome Tax Act, RSC 1985, c 1 (5th Supp), and the Income Tax Regulations, CRC, c 945 [together, Tax Rules]. Typically, an insuredobtains a tax advantage on investment income by means of an account where the return on investment is exempt from accrual tax,provided sums in the account do not exceed limits established under the Tax Rules [exempt account].

Separate and apart from this, theinsurer may receive, hold and invest sums on behalf of an insured in an account that is not exempt from accrual tax under the Tax Rules[side account].[1] In these reasons, exempt account refers to: (

i) the “Investment Accounts” under the de Bruin ULP; (ii) the “InvestmentAccounts” under the Walkom ULP; and (iii) the “Flex Account” under the Zinkhan ULP; and, side account refers to: (

i) the “CarrierFund” under the de Bruin ULP; (ii) the “Side Account” under the Walkom ULP; and (iii) the “Express Account” under the Zinkhan ULP. [12] As is evident, every ULP is a life insurance contract. However, a ULP that provides for a side account also has a non-insuranceaspect; that is, it is an investment contract. It is at once both of these things and neither of them as a whole. In our view, such a ULP is notJanus-faced; it is an amalgam of its two faces. An understanding of its general nature as a contract is important because, in certainrespects, the law applies different rules to the

interpretation of insurance contracts and consumer contracts than to the contracts that lackthose characteristics. This is so despite the fact that, as we explain below, all contracts must be interpreted in accordance with the samebasic analytical framework, which we, like the Judge, describe as the Sattva approach, in reference to that articulated by Rothstein J. inSattva Capital Corp. v Creston Moly Corp., 2014 SCC 53, [2014] 2 SCR 633 [Sattva]. [13] The law approaches the

interpretation of an insurance contract differently than other types of contracts for several reasons.Insurance contracts serve the interests of society as a whole by spreading the risk of fortuitous loss broadly. They are generally contractsof adhesion. The parties to them are, for the most part, significantly disparate in their knowledge of the relevant law and insurancepractices and, conversely, in their knowledge of facts relevant to the assessment of risks.

For these and other reasons, Parliament and theprovincial legislatures have passed laws governing the content of insurance contracts and setting out the rights and obligations of theparties to them (see, generally, the Insurance Companies Act, SC 1991, c 47, The Insurance Act, SS 2015, c I-9.11 [The Insurance Act,2015], and the Insurance Regulations).

In some respects, the relevant legislation reflects public policy decisions taken to ensure thatinsurance contracts comport with community values. [14] For similar reasons, the courts have developed what is known as the doctrine of utmost good faith (uberrima fides; see Carter vBoehm (1766), 97 ER 1162; Coronation Insurance Co. v Taku Air Transport Ltd., (SCC), [1991] 3 SCR 622; Whiten vPilot Insurance Co., 2002 SCC 18, [2002] 1 SCR 595; and Fidler v Sun Life Assurance Co. of Canada, 2006 SCC 30, [2006] 2 SCR 3),recognising the near fiduciary aspect of an insurance contract.

As the Judge observed, the courts have also developed special principles ofinterpretation for insurance contracts (see Geoff R. Hall, Canadian Contractual

Interpretation Law, 3d ed (Toronto: LexisNexis, 2016) at241–255 [Hall Text]). [15] A pivotal question in these matters is whether all of this “insurance law” applies when interpreting the contracts at issue herebecause, as we have noted, the ULPs are at once both life insurance contracts and investment contracts. In our view, it is unnecessary, andwould be incorrect, to interpret these ULPs in a manner that ignores this fundamental characteristic. Rather, when it exists, the interpretingcourt should focus on the specific issues of contract

interpretation raised by the parties and ask whether those issues engage any of thespecialised principles of contract

interpretation that apply to insurance contracts and to life insurance contracts in particular. [16] That is the approach we have taken in these appeals. The ULPs at issue here all have these two aspects of insurance andinvestment, albeit their texts differ. Clearly, the principles of

interpretation that apply to life insurance contracts apply to certain aspects ofULPs. However, we conclude that they do not apply to significant parts of these ULPs and, in particular, do not apply to the issues ofinterpretation raised by the parties in these appeals. Further, as both the insurance and investment aspects of the ULPs strongly indicatethat a ULP is a consumer contract, as opposed to a commercial contract or a contract between participants in a given industry, we haveinterpreted them in a manner that takes account of that characteristic (see Hall Text at 217–221). D.

The Dispute that Underpins the Appeals [17] As noted, the amount an insured may invest within an exempt account is limited by the Tax Rules. The Tax Rules do not limitthe amount an insured may invest within a side account. The common dispute, which underpins each appeal, is whether there is acontractual limit on the amount an insured may invest in a side account. [18] One reason the answer to that question is important to the parties is that some of the investment opportunities made available

under the ULPs in question are guaranteed investment products with fixed rates of return that were established years ago, at the time of contract formation. At that time, interest rates were much higher than today. In the result, the rates of return under these ULP investment products well-exceed what is currently available under comparable investment products.

The ULPs also contain investment bonus provisions that, if exercised by an insured, further enhance the insured’s rate of return and increase the cost to the insurers who agreed to provide them. [ 19 ] In their applications, the Appellants asked the Judge to declare that they had a contractual right to invest unlimited amounts within a side account. The Respondents argued the ULPs ought to be interpreted as establishing a contractual limit on the amount that may be invested or held in a side account.

The Judge found the ULPs did not “provide for unlimited stand-alone investment opportunities” within a side account. The various issues raised in the appeals all relate to whether the Judge erred in that regard. [ 20 ] With that background in mind, we turn to consider the issues arising in these matters. III. ISSUES [ 21 ] The Appellants and the Respondents have put several issues before the Court. A. CACV3407 – Mosten Appeal [ 22 ] Mosten asks the Court to determine whether the Judge erred: (

a) by finding the purpose of the de Bruin ULP was both protection and investment but that the general economic purpose of insurance does not include investment; (

b) when interpreting the word premium in the de Bruin ULP by (

i) treating it as a legal term of art instead of using its plain and ordinary meaning, (ii) finding an insured is an insurance industry participant, (iii) finding Manulife could restrict the amount of premiums paid under the ULP, and (iv) finding Manulife could refund excess premiums without having received a request therefor; (

c) by declining to exercise his jurisdiction to address (

i) Mosten’s request for a declaration regarding an investment bonus, and (ii) the way in which an investment bonus is calculated and credited under the de Bruin ULP; and (

d) by striking evidence adduced by Mr. Hawkins, a principal of Mosten [2] , and when he considered evidence adduced by Greg Cerar, an affiant of Manulife. B. CACV3407 – Manulife Cross-appeal [ 23 ] Manulife cross-appeals against the Mosten Decision alleging the Judge erred by considering an overly narrow factual matrix and by excluding evidence on grounds of inadmissibility or irrelevance. Manulife also asserts the Judge erred by finding the Regulation is not declaratory and, if not, Manulife asserts the Regulation has retroactive effect or, in the further alternative, retrospective effect. C. CACV3408 – Atwater Appeal [ 24 ] Atwater asks the Court to determine whether the Judge erred: (

a) when defining the word premium in the Walkom ULP by (

i) attributing an expectation to an insured that is not supported by the words of the ULP, (ii) failing to use the plain and ordinary meaning of the payment of premiums provision in the ULP, (iii) finding an insured is an insurance industry participant, and (iv) placing undue emphasis on the tax-exempt investment aspect of the ULP while ignoring its taxable investment aspect; (

b) by relying on an industry publication to determine the purpose of ULPs generally and by holding that an ordinary insured would know the niceties of insurance taxation; and (

c) by admitting what is known as the Dietrich Affidavit , which it says is hearsay. D. CACV3408 – BMO Life Cross-appeal [ 25 ] BMO Life’s cross-appeal against the Atwater Decision alleges the Judge erred by considering an overly narrow factual matrix and by excluding evidence on grounds of inadmissibility or irrelevance. BMO Life also asserts the Judge erred by finding the Regulation is (

i) not declaratory, (ii) ultra vires the Lieutenant Governor, (iii) not retroactive, and (iv) not retrospective. E. CACV3409 – Ituna Appeal [ 26 ] Ituna asks the Court to find that the Judge erred: (

a) when defining the word premium under the Zinkhan ULP;

(

b) in applying the principles of

interpretation to standard form insurance contracts; (

c) in his approach to and use of context in the

interpretation of a standard form contract; (

d) by conflating the first two stages of

interpretation under Ledcor Construction Ltd. v Northbridge Indemnity Insurance Co. , 2016 SCC 37 , [2016] 2 SCR 23 [ Ledcor ] ; (

e) by erroneously basing his analysis on a faulty understanding of a ULP; (

f) by finding premium is a legal term of art; (

g) by finding an ordinary insured would have understood the niceties of the insurance and investment interaction under a ULP; (

h) by ignoring and rewriting provisions of the Zinkhan ULP, leading to absurdities; (

i) by striking portions of Mr. Hawkins’s affidavit and reply affidavit; and (

j) by declining to exercise his jurisdiction to grant the declarations it sought thereby failing to address what it describes as the Term Allocation Contravention . F. CACV3409 – Industrial Alliance Cross-appeal [ 27 ] In its cross-appeal against the Ituna Decision , Industrial Alliance alleges the Judge erred by considering an overly narrow factual matrix and by excluding evidence on grounds of inadmissibility or irrelevance. Industrial Alliance asserts the Judge erred by finding the Regulation is (

i) not declaratory, (ii) ultra vires the Lieutenant Governor, and (iii) not retrospective. IV. STANDARDS OF REVIEW A. In General [ 28 ] The appellate standard of palpable and overriding error applies to all questions of fact ( Housen v Nikolaisen , 2002 SCC 33 at para 10 , [2002] 2 SCR 235 [ Housen ] ; and H.L. v Canada (Attorney General) , 2005 SCC 25 at para 53 , [2005] 1 SCR 401). Absent an “extricable question of law”, the standard of palpable and overriding error also applies to questions of mixed fact and law ( Housen at paras 31 and 33 ; and Sattva at paras 52–53 ). The standard of correctness applies to questions of law ( Housen at paras 8–9 and 33 ). The

interpretation of a statutory instrument is a question of law ( TELUS Communications Inc. v Wellman , 2019 SCC 19 at para 30 , [2019] 2 SCR 144; Heritage Capital Corp. v Equitable Trust Co. , 2016 SCC 19 at para 23 , [2016] 1 SCR 306 [ Heritage Capital ]; and Canadian National Railway Co. v Canada (Attorney General) , 2014 SCC 40 at para 33 , [2014] 2 SCR 135; see also Canada (Minister of Citizenship and Immigration) v Vavilov , 2019 SCC 65 at para 37 , 441 DLR (4th) 1). B. In Contract

Interpretation 1. The Parties’ Positions [ 29 ] The parties agree that the ULP at issue in their respective appeals is a standard form contract. For the most part, they also agree that the

interpretation of their respective ULP, qua standard form contract, raises questions of law that are subject to appellate review on the standard of correctness. In this regard, they rely on the majority reasons in Ledcor , where Wagner J. (as he then was) wrote: [24] I would recognize an exception to this Court’s holding in Sattva that contractual

interpretation is a question of mixed fact and law subject to deferential review on appeal. In my view, where an appeal involves the

interpretation of a standard form contract, the

interpretation at issue is of precedential value, and there is no meaningful factual matrix that is specific to the parties to assist the

interpretation process, this

interpretation is better characterized as a question of law subject to correctness review. [ 30 ] While BMO Life agrees that the correctness standard applies to the

interpretation of the Walkom ULP, it submits some issues of

interpretation could still give rise to a question of mixed fact and law because extrinsic evidence exists to assist the court. BMO Life also characterises the

interpretation of the Walkom ULP as having low precedential value to anyone other than insurers and hedge fund investors. In its cross-appeal, BMO Life argues the Judge erred by adopting an overly narrow view of the evidence that is admissible in the

interpretation of a standard form insurance contract under the first of the three stages of the approach outlined in Ledcor . If the Judge should have considered a broader factual matrix, BMO Life says the appropriate standard of review would be palpable and overriding error ( Ledcor at para 48 ; and Sattva ). Even so, BMO Life submits the identification of the correct legal test to be applied is a question of law that attracts the standard of correctness ( Sattva at para 49 ). 2.

The Supreme Court Jurisprudence [ 31 ] While the parties have, in most respects, agreed that correctness is the standard of review applicable in these appeals, we acknowledge that the law relating to this issue is not without controversy. However, we do not subscribe to the view, espoused by some, that the Supreme Court of Canada dicta on this issue is inconsistent or conflicting. As we see it, the Supreme Court of Canada jurisprudence sets forth a single, comprehensive approach to contract

interpretation and identifies discernable principles for selecting the applicable standards of appellate review in cases of contract

interpretation. Based on that jurisprudence, as we explain below, we agree

that the correctness standard of appellate review applies to the issues of contract

interpretation raised in these appeals. [32] As noted, academic criticism has been leveled at Supreme Court of Canada jurisprudence on contract

interpretation in recentyears and, particularly, its dicta on the applicable standard of appellate review; see: Angela Swan, Jakub Adamski & Annie Y. Na,Canadian Contract Law, 4th ed (Toronto: LexisNexis, 2018) at 733–735 [Swan Text]; Hall Text at 146–153; John D. McCamus, The Lawof Contracts, 3d ed (Toronto: Irwin Law, 2020) at 853–860 [McCamus Text]; Sandra L. Corbett and Ryan P. Krushelnitzky, “Through theScratched Looking Glass: Sattva, Ledcor, Teal and Developments in the Law of Contract” (2017) 1 Ann Rev Civ Lit 379; Earl A.Cherniak, “Sattva Revisited” (2015) 34:2 Adv J 6 at 7; Andrea M.

Bolieiro, “Ledcor and the Trouble with Taking a Categorial Approachto Standards of Review” (2017) 35:4 Adv J 35; and Daniele Bertolini, “Unmixing the Mixed Questions: A Framework for DistinguishingBetween Questions of Fact and Questions of Law in Contractual

Interpretation” (2019) 52 UBC L Rev 345. In the Swan Text at pages723–724, the authors comment on Sattva, Ledcor and Sabean v Portage La Prairie Mutual Insurance Co., 2017 SCC 7, [2017] 1 SCR 121[Sabean], which the parties placed at the core of these appeals, querying: 8.100 Where do we go from here? The Supreme Court has made so many inconsistent and conflicting statements in such an amazinglyshort time that the law on contractual

interpretation could be anything—blinding flash (except where ambiguous), intention of the partiesor even the protection of their reasonable expectations. No single comprehensive approach to contractual

interpretation that covers allcontracts exists. But if that is the case, should not the court have expressly stated it?

Moreover, is that approach consistent with the court’srecent view, affirming the existence of a unifying principle, the “general organizing principle” of good faith performance, underlying allcontractual relations? (Footnotes omitted) [33] As to the standard of review, the Swan Text also suggests that “[t]he problem... is that the issues that decide whether one or theother standard [of review] is applicable also go to establishing the surrounding circumstances used to interpret a contract and, hence, thetwo issues get hopelessly tangled up” (Swan Text at 724, footnote 193).

In our view, the opposite is true, at least in relation to standardform contracts. The factors relevant to whether the correctness standard applies do not establish whether there are surroundingcircumstances relevant to the

interpretation of such a contract. It is the reverse; the existence or non-existence of a factual matrix or ofcircumstances surrounding contract formation specific to the parties to such a contract determines the standard of review. As we willexplain, this is not to say that circumstances that are not specific to the contracting parties are irrelevant to issues of standard form contractinterpretation. But, if the contract is in a standard form and there are no such surrounding circumstances, its

interpretation may haveprecedential value and, therefore, the correctness standard of appellate review applies. If the contract is not in a standard form or there arecircumstances surrounding its formation particular to the parties and that are relevant to the issue of

interpretation, the standard of review—absent an “extricable” question of law—–is palpable and overriding error. [34] Although we have referred here to a standard form contract, we would emphasise that it is misleading to speak as if thequestion as to the applicable standard of review relates to the contract as a whole. The question is the applicability of a standard of reviewto the issue or issues of

interpretation put before the appellate court. An issue may relate to the contract as a whole. It may relate only to asingle clause that is itself in a standard form and that is not affected by the circumstances surrounding contract formation specific to theparties. The interpreting court may be faced with issues of

interpretation that, on appeal, attract the correctness standard along with issuesthat attract the palpable and overriding error standard. With these considerations in mind, we have chosen to use the phrase issue ofstandard form contract

interpretation in these reasons when speaking about the

interpretation of standard form contract language in theabsence of a meaningful factual matrix that is specific to the parties. To be clear, the terms of the contract as a whole, which must alwaysbe considered, may still affect an issue of standard form contract

interpretation. [35] Approached in this manner, the question of whether there are factual circumstances of contract formation specific to thecontracting parties that are probative of the meaning of contested contractual language is properly understood as key to determiningwhether the

interpretation of that language is an issue of standard form contract

interpretation and, as such, is subject to appellate reviewon the correctness standard. That is a different question than whether there are any surrounding circumstances relevant to theinterpretation of a contract as a whole. [36] In Sattva, Rothstein J. described surrounding circumstances as “knowledge that was or reasonably ought to have been within theknowledge of both parties at or before the date of contracting” (at para 58). Where an issue of standard form contract

interpretation isengaged, such circumstances will exist. However, they are, by definition, limited to what was or reasonably ought to have been known tothe parties in all instances where that standard form contract exists. The proper scope of evidence of surrounding circumstances in relationto these ULPs is very much at issue in these appeals. [37] The law relating to these issues is addressed in more detail below. 3. Precedential Value [38] It is often said, based on Sattva, that the presumptive standard of review relating to contract

interpretation is palpable andoverriding error, as contract

interpretation is generally a question of mixed fact and law. However, this idea speaks most directly tocommercial contracts. Standard form contracts are now pervasive, evermore so in the context of online consumer transactions. For theselatter types of contract, which certainly outnumber commercial ones, the presumptive standard of appellate review is correctness, as wewill explain. [39] It is our view that the application of the correctness standard of review to issues of standard form contract

interpretation isdoctrinally consistent with Sattva. That is so because the principal factor that indicates whether an issue of contract

interpretation givesrise to a question of law is its precedential value (Canada (Director of Investigation and Research) v Southam Inc., (SCC), [1997] 1 SCR 748 [Southam]; Housen; Sattva; the majority reasons in Ledcor[3]; Canada (Attorney General) v Fontaine, 2017SCC 47 at para 35, [2017] 2 SCR 205 [Fontaine]; Churchill Falls (Labrador) Corp. v Hydro-Québec, 2018 SCC 46 at para 49, [2018] 3SCR 101; J.W. v Canada (Attorney General), 2019 SCC 20 at paras 110–112, [2019] 2 SCR 224; and Trenchard v Westsea ConstructionLtd., 2020 BCCA 152 at paras 41–43, 37 BCLR (6th) 103; see also MSI Methylation Sciences, Inc. v Quark Venture Inc., 2019 BCCA 448at paras 64–68, 31 BCLR (6th) 264).

[40] On one gauge, the precedential value of an

interpretation is related to the repeated use of the contract language in question. Weuse the example of a standard form real estate contract, as was at issue in Vallieres v Vozniak, 2014 ABCA 290, 377 DLR (4th) 80[Vozniak], where the bulk of the clauses are identical under each contract, underscoring the precedent-setting nature of their

interpretation. [41] In contextual terms, even though in a standard form, each contract for the sale of real estate would necessarily contain unique oruncommon, and possibly handwritten, clauses—e.g., “the drapes stay but the dishwasher is excluded”—the

interpretation of which has noprecedential value. The mutual intention of the parties as to whether drapes includes curtains and blinds in the context of that contract isbetter gleaned from the circumstances surrounding contract formation. Such a question is, for the reasons explained in Sattva, a questionof mixed fact and law. Whereas, the

interpretation of a standard form clause in that same contract is a question of law precisely becausehow it is interpreted has value to multiple other users of the same—and, potentially, other—standard form contracts. On this gauge, theprecedential value of an

interpretation lies in the potential for multiple, subsequent uses of the same contract language by different or eventhe same parties. [42] On a related measure, the precedential value of an

interpretation lies in its importance as law. Precedential value is a normativeterm that invokes a number of legal principles. These principles are themselves expressions or aspects of the rule of law. Here, we speak ofprinciples such as stare decisis as it manifests under the objectives of attaining consistency in the application of the law, certainty andpredictability of legal results, judicial accountability, and justified decision-making. These and other aspects of the rule of law underpinRothstein J.’s analysis of the standards of review in Sattva and that of Wagner J. in Ledcor (see also Southam and Housen). [43] The Supreme Court has ruled that where an issue of contract

interpretation is more akin to a “dispute…over a generalproposition that might qualify as a principle of law” (Southam at para 37) or over the “correct legal test” (Ledcor at para 43) than it is to “avery particular set of circumstances that is not apt to be of much interest to judges and lawyers in the future” (Southam at para 37; andLedcor at para 48) the

interpretation of the contract language at issue is of general importance to the law. Where an issue of

interpretationtranscends the four corners of the dispute between the parties to it, as Cromwell J. observed in Ledcor (at para 117), the

interpretation hasprecedential value. [44] Where an issue of standard form contract

interpretation has been decided, certainty in the law and consistency in its applicationshould be central objectives for every subsequent interpreting court. The prior

interpretation is the law relating to that issue. It would beuntenable if this law differed when different courts considered the same issue in subsequent matters (Vozniak at para 13; see alsoCanadian Imperial Bank of Commerce v Urbancorp (Leslieville) Developments Inc., 2020 ONCA 449 at para 27). Consistency in the lawis advanced by appellate review of such an

interpretation for its correctness (Ledcor at para 39), within the framework of stare decisis andcomity. [45] Justice Rothstein suggested in Sattva that “extricable” questions of law would arise rarely in the context of contractinterpretation (at para 55). However, as Wagner J. observed in Ledcor, Rothstein J. was not speaking about all types of contracts when hemade that remark. He was speaking about the uniqueness of a negotiated commercial contract where a meaningful factual matrix exists toassist with its

interpretation, which, as a category, does not cover the full breadth of the contracts courts are asked to interpret. [46] As appellate judges, we find the word extricable guides the determination of the appropriate standard of review. It tells us tolook for a sometimes elusive bright line that demarcates pure questions of law from questions of mixed fact and law. NotwithstandingRothstein J.’s cautious view, the post-Sattva jurisprudence reflects the fact that appellate courts have found questions of law to have arisenin the review of contract

interpretation where the lower court had, for example: (

a) read a term in a contract in isolation or otherwise failed to read the contract as a whole (1298417 Ontario Ltd. v Lakeshore(Town), 2014 ONCA 802 at para 7, 122 OR (3d) 401, leave to appeal to SCC refused, [Lakeshore (Town)]; RichcraftHomes Ltd. v Urbandale Corporation, 2016 ONCA 622 at para 69, 406 DLR (4th) 507 [Richcraft Homes]; Whirlpool Canada Co. vChavila Holdings Limited, 2017 ONCA 81 at para 72, 134 OR (3d) 161; 911502 Alberta Ltd. v Elephant Enterprises Inc., 2014 ABCA437 at para 12, 588 AR 296 [Elephant Enterprises]; Directcash ATM Management Partnership v Maurice’s Gas & Convenience Inc.,2015 NBCA 36 at para 23, 437 NBR (2d) 292 [Directcash]; and Amberber v IBM Canada Ltd., 2018 ONCA 571 at paras 59–64, 424DLR (4th) 169 [Amberber]); (

b) failed to consider a material part of the contract (Havenlee Farms Inc. v HZPC Americas, 2017 PECA 20 at paras 35–36[Havenlee Farms]; and Sanofi Pasteur Limited v UPS SCS, Inc., 2015 ONCA 88 at para 37, 382 DLR (4th) 54); (

c) adopted an

interpretation that rendered meaningless a provision of the contract (Richcraft Homes at para 69); (

d) failed to give effect to important words in the contract (Thunder Bay (City) v Canadian National Railway Company, 2018ONCA 517 at paras 46 and 60, 424 DLR (4th) 588, leave to appeal to SCC refused, [Thunder Bay (City)]; Jesan RealEstate Ltd. v Doyle, 2020 ONCA 714 at para 35; and Fuller v Aphria Inc., 2020 ONCA 403 at para 50); (

e) failed to consider the factual matrix (IFP Technologies (Canada) Inc. v EnCana Midstream and Marketing, 2017 ABCA 157at para 58, [2017] 12 WWR 261, leave to appeal to SCC refused, [IFP Technologies], citing British Columbia(Minister of Technology Innovation and Citizens’ Services) v Columbus Real Estate Inc., 2016 BCCA 283 at paras 40 and 51, 402 DLR(4th) 117; and Starrcoll Inc. v 2281927 Ontario Ltd., 2016 ONCA 275 at paras 16–17, 68 RPR (5th) 173); or failed to consider a materialpart of a relevant factual matrix (Jeffrie v Hendriksen, 2015 NSCA 49 at para 28, 360 NSR (2d) 65 [Jeffrie]; and Puri Consulting Limitedv Kim Orr Barristers PC, 2015 ONCA 727 at paras 18 and 33, 128 OR (3d) 14 [Puri Consulting]); (

f) failed to recognise that a legal term of art has a certain meaning at law (IFP Technologies at para 62, citing Sattva at para 53;and Deslaurier Custom Cabinets Inc. v 1728106 Ontario Inc., 2017 ONCA 293 at paras 65–68, 135 OR (3d) 241); (

g) strained to create ambiguity where none existed (Amberber at paras 63 and 65); (

h) allowed the factual matrix to overwhelm the text of the contract (Kilitzoglou v Curé, 2018 ONCA 891 at para 41, 143 OR (3d)385 [Kilitzoglou]; Havenlee Farms at paras 35–36; and British Columbia (Ministry of Forests) v Teal Cedar Products Ltd., 2015 BCCA263 at para 57, 386 DLR (4th) 40 [Teal Cedar CA], but, in Teal Cedar Products Ltd. v British Columbia, 2017 SCC 32 at para 4, [2017] 1

SCR 688 [ Teal Cedar SCC ], Gascon J. for the majority held: Second, there is a question of contractual

interpretation: whether the arbitrator let the factual matrix overwhelm the words of the contract when he interpreted an amended settlement agreement between the parties in light of the factual matrix of their failed negotiations. This question may be formulated in two ways: (1) whether the arbitrator allocated excessive weight to the factual matrix; or (2) whether the arbitrator’s

interpretation of the factual matrix was isolated from the words of the contract. The former formulation is a question of mixed fact and law and thus falls outside the scope of appellate review permitted under the Arbitration Act . The latter formulation, while it raises a question of law, lacks arguable merit in this case because the arbitrator’s

interpretation was clearly anchored in the words of the contract, which he interpreted in light of the factual matrix. Without arguable merit, this formulation also fails to confer appellate review jurisdiction under the Arbitration Act . (

i) based an

interpretation on the subsequent conduct of the parties even though the text of the contract was not ambiguous ( Thunder Bay (City) at paras 61 and 65 ); (

j) relied on subsequent conduct evidence to create an ambiguity ( Wade v Duck , 2018 BCCA 176 at para 32 , 422 DLR (4th) 423); (

k) relied on subsequently arising circumstances to construe a contract ( Kilitzoglou at para 40 ); (

l) relied on its own assessment of what was “fair or reasonable”, rather than giving the words of a contract their ordinary and grammatical meaning in the context of the contract as a whole ( Kilitzoglou at paras 57–58 ); (

m) failed to correctly apply contract law ( Elephant Enterprises at para 10 ; Jeffrie at para 26 ; and Moulton Contracting Ltd. v British Columbia , 2015 BCCA 89 at paras 5 and 78 , 381 DLR (4th) 263); (

n) resorted to the doctrine of contra proferentem too early in the interpretive process ( Puri Consulting at para 33 ; and Pepin v Telecommunications Workers Union , 2017 BCCA 194 at para 6 , 97 BCLR (5th) 345 [ Pepin ]), or without first finding an ambiguity ( Directcash at paras 25–26 ), or without resolving how the doctrine was applicable where both parties had had a meaningful opportunity to negotiate the contract ( Pepin at para 7 ); and (

o) breached the rules of natural justice by finding an implied term where that issue had not been joined between the parties and was not the subject of submissions ( Servus Credit Union Ltd. v Crelogix Acceptance Corporation , 2020 ABCA 220 , [2020] 10 WWR 67). [ 47 ] Quite apart from the foregoing specific errors of law, the general application of the correctness standard in appeals involving issues of standard form contract

interpretation does not result from the identification of an extricable question of law. In Ledcor , Wagner J. described the precedential value of standard form contracts as being an exception to the Court’s holding in Sattva that the presumptive standard of review is palpable and overriding error ( Ledcor at paras 33–45 ). As we see it, it is better described as the application in a different context of the principles that underpin that holding. More specifically, Wagner J. affirmed that the

interpretation of a standard form contract has precedential value where “ there is no meaningful factual matrix that is specific to the particular parties to assist the

interpretation process” ( Ledcor at paras 4 and 24 , emphasis added). [ 48 ] In this way, Wagner J.’s reasons reconcile the holding in Sattva with the precedential value of the

interpretation of a standard form contract by explaining that, where such an

interpretation has precedential value, it has a sufficient degree of generality on the “spectrum of particularity” described in Housen (at para 28 ) to be concerned with a general proposition. As the Court there remarked, this issue was earlier addressed by Iacobucci J. in Southam : [37] … [T]he matrices of facts at issue in some cases are so particular, indeed so unique, that decisions about whether they satisfy legal tests do not have any great precedential value.

If a court were to decide that driving at a certain speed on a certain road under certain conditions was negligent, its decision would not have any great value as a precedent. In short, as the level of generality of the challenged proposition approaches utter particularity, the matter approaches pure application, and hence draws nigh to being an unqualified question of mixed law and fact. See R. P. Kerans, Standards of Review Employed by Appellate Courts (1994), at pp. 103-108.

Of course, it is not easy to say precisely where the line should be drawn; though in most cases it should be sufficiently clear whether the dispute is over a general proposition that might qualify as a principle of law or over a very particular set of circumstances that is not apt to be of much interest to judges and lawyers in the future. [ 49 ] Cast in Southam ’s terms, the answer to an issue of contract

interpretation is neither particular nor unique if it involves the same issue of

interpretation and the same or substantially the same contract language as is used in other contracts and there is no meaningful factual matrix specific to the parties that is relevant to the issue. Rather, the answer is a general rule or general proposition on the spectrum of particularity and, therefore, the issue of

interpretation falls on the question of law side of that spectrum. Viewed in this way, the standard of appellate review relating to issues of standard form contract

interpretation—which arises only when the foregoing conditions have been met—is not an exception to the rule that the palpable and overriding error standard is generally applicable but is an application of the principles espoused in Southam , Housen , Sattva and Ledcor . [ 50 ] Justice Rothstein himself drew on Southam and Housen to observe that the precedential value of an

interpretation often dictates whether the issue of

interpretation gives rise to a question of law ( Sattva ): [50] …Contractual

interpretation involves issues of mixed fact and law as it is an exercise in which the principles of contractual

interpretation are applied to the words of the written contract, considered in light of the factual matrix. [ 51 ] The purpose of the distinction between questions of law and those of mixed fact and law further supports this conclusion. One central purpose of drawing a distinction between questions of law and those of mixed fact and law is to limit the intervention of appellate courts to cases where the results can be expected to have an impact beyond the parties to the particular dispute .

It reflects the role of courts of appeal in ensuring the consistency of the law , rather than in providing a new forum for parties to continue their private litigation. For this reason, Southam identified the degree of generality (or “precedential value”) as the key difference between a question of law and a question of mixed fact and law. The more narrow the rule, the less useful will be the intervention of the court of appeal:

If a court were to decide that driving at a certain speed on a certain road under certain conditions was negligent, its decision would not have any great value as a precedent . In short, as the level of generality of the challenged proposition approaches utter particularity, the matter approaches pure application, and hence draws nigh to being an unqualified question of mixed law and fact. See R. P. Kerans, Standards of Review Employed by Appellate Courts (1994), at pp. 103-108.

Of course, it is not easy to say precisely where the line should be drawn; though in most cases it should be sufficiently clear whether the dispute is over a general proposition that might qualify as a principle of law or over a very particular set of circumstances that is not apt to be of much interest to judges and lawyers in the future . [para. 37] [ 52 ] Similarly, this Court in Housen found that deference to fact-finders promoted the goals of limiting the number, length, and cost of appeals, and of promoting the autonomy and integrity of trial proceedings (paras. 16-17).

These principles also weigh in favour of deference to first instance decision-makers on points of contractual

interpretation. The legal obligations arising from a contract are, in most cases, limited to the interest of the particular parties. Given that our legal system leaves broad scope to tribunals of first instance to resolve issues of limited application, this supports treating contractual

interpretation as a question of mixed fact and law. (Emphasis added) [51] As we read the decision of the majority in Ledcor on this point, Wagner J. affirmed this reasoning that the precedential value of an

interpretation has a determinative effect on the nature of the question arising at both the interpretive stage and the appellate stage. Justice Wagner also remarked that the fact a contract is a standard form contract and the fact there is no relevant factual matrix specific to the parties similarly indicate its

interpretation may give rise to a question of law (at paras 4 and 24). [52] As we have explained, we would put the matter differently but to the same end. A contract (or issue) is a standard form contract (or an issue of standard form contract

interpretation) for the purposes of appellate review only if three conditions are met. First, there must be an identical or a substantially identical form of contract language capable of standardised use by multiple, different parties. In the overwhelming majority of cases, that means the standard form contractual language at issue will have been entirely reduced to writing. The assertion of an oral, handwritten or typed term or condition or other deviation from standard form text relevant to the issue of

interpretation in question connotes the existence of a meaningful factual matrix specific to the contracting parties, such that the issue of

interpretation is a question of mixed fact and law—i.e., being unique, it lacks precedential value (for example, see Albo v The Winnipeg Free Press , 2020 MBCA 50 at para 18 , [2020] 6 WWR 187). [ 53 ] Second, there must be no factual matrix that is specific to the parties to the contract and that is probative of the issue of contract

interpretation. In the McCamus Text , the author describes standard form contracts as follows (at 202–203): In these kinds of situations, the document put forward will typically constitute a standard printed form that the party proffering the document invariably uses when entering transactions of this kind. The form will often be offered on a “take it or leave it” basis. In the typical case, the other party, then, will have no choice but either to agree to the terms of the standard form or to decline to enter the transaction altogether.

Standard form agreements are a pervasive and indispensable feature of modern commercial life. It is simply not feasible to negotiate, in any meaningful sense, the terms of many of the transactions entered into in the course of daily life. … See also MacDonald v Chicago Title Insurance Company of Canada , 2015 ONCA 842 at para 33 , 127 OR (3d) 663; and Corydon Village Mall Ltd. v TEL Management Inc. , 2017 MBCA 8 at paras 30–48 , 407 DLR (4th) 263. [ 54 ] Third, the standard form contract must be one that has been or will be repeatedly entered into. [ 55 ] These three factors are characteristic of a contract, the

interpretation of which will have precedential value. The

interpretation of a standard form contract or of a standard form clause is always a question of law because the answer has precedential value. That is so because the law and the facts are the same each time the standard form contract language is interpreted. The

interpretation is, accordingly, a finding of law that is subject to appellate review for its correctness. [ 56 ] This analytical framework is consistent with the reasoning in Ledcor . There, Wagner J. concluded that correctness was the applicable appellate standard in that case based on these three factors; that is, the appeal involved the

interpretation of a standard form contract, the

interpretation was of precedential value, and there was no meaningful factual matrix specific to the parties to assist the

interpretation process. It is also consistent with the following reasoning in Ledcor , which suggests that appeals relating to aspects of standard form contracts may nonetheless give rise to mixed questions of fact and law: [48] Depending on the circumstances, however, the

interpretation of a standard form contract may be a question of mixed fact and law, subject to deferential review on appeal. For instance, deference will be warranted if the factual matrix of a standard form contract that is specific to the particular parties assists in the

interpretation. Deference will also be warranted if the parties negotiated and modified what was initially a standard form contract, because the

interpretation will likely be of little or no precedential value. There may be other cases where deferential review remains appropriate. As Iacobucci J. recognized in Southam , the line between questions of law and those of mixed fact and law is not always easily drawn.

Appellate courts should consider whether “the dispute is over a general proposition” or “a very particular set of circumstances that is not apt to be of much interest to judges and lawyers in the future” (para. 37). [ 57 ] On first impression, the foregoing passage appears to differ from the framework that we propose and that is reflected at paragraph 46 of Ledcor . There is, however, no difference in substance.

Rather, the seeming difference results from the fact that, in the foregoing passage, Wagner J. refers to “standard form contracts” as including contracts that may be in or based on a standard form but where there is also a factual framework relating to the parties to assist with

interpretation or where there have been modifications to the contract. In our respectful opinion, referring to such contracts as “standard form contracts” for purposes of

interpretation and determining the standard of review may be the source of some of the confusion referred to in the academic commentary. In our view, it is both preferable and more accurate to use the term “standard form contracts” in reference only to those contracts that, in their entirety, meet all three conditions described above. More specifically, it is preferable and more accurate to address contract

interpretation on an issue-by- issue basis to determine whether each issue is an issue of standard form contract

interpretation . Approached in this manner, a contract or contractual provision that has been modified or that is subject to

interpretation based on a meaningful factual matrix specific to the parties to it is not a standard form contract at all and does not involve an issue of standard form contract

interpretation.

[58] We would emphasize that, for the first judge who decides an issue of standard form contract

interpretation, the classification ofsuch an issue as a question of law for standard of review purposes is irrelevant. The usual process of contract

interpretation applies. Theinterpreting judge is obliged to apply the principles of contract

interpretation to the facts. The facts include the written contract and thesurrounding circumstances, which would be limited in the manner described above. The interpretive process differs only where the issueof standard form contract

interpretation has already been decided by another court. In that case, the earlier

interpretation would constitutelaw relating to that issue. In such a case, comity and stare decisis would come into play in the usual way. [59] We would finally note that we have concluded that the three factors that signal the existence of an issue of standard formcontract

interpretation are present in relation to the issues of

interpretation raised in these appeals. Each of the appeals involves theinterpretation of a contract that uses standard form language. The

interpretation of each ULP is, at the very least, of precedential value tothe insurer and insureds who have contracted and may in the future contract under the same or a similar standard form ULP. There is nosuggestion that there is a meaningful factual matrix specific to the parties that would assist with the

interpretation of any of the issues ofcontract

interpretation before the Court. Our reasons for these conclusions are explained below. C.

In the Exercise of Judicial Discretion [60] The standard of review of an exercise of judicial discretion is deferential, meaning an appellate court is not entitled to substituteits own discretion for that of the judge vested with the authority merely because it would have exercised the authority differently (Friendsof the Oldman River Society v Canada (Minister of Transport), (SCC), [1992] 1 SCR 3 at 76–77). [61] The Court’s decision in Rimmer v Adshead, 2002 SKCA 12 at para 58, [2002] 4 WWR 119 [Rimmer], is the most commonlyreferenced case in Saskatchewan for the standard of appellate review of the discretionary decisions of judges.

Building on the principlesthat underpin the rule of law and recognising that no discretionary power is completely unfettered or unlimited, Cameron J.A. said, “thepowers in issue are discretionary and therefore fall to be exercised as the judge vested with them thinks fit, having regard for such criteriaas bear upon their proper exercise”.

The criteria that bear upon the proper exercise of judicial discretion “are legal criteria, and theirdefinition as well as a failure to apply them or a misapplication of them raise questions of law” (British Columbia (Minister of Forests) vOkanagan Indian Band, 2003 SCC 71 at para 43, [2003] 3 SCR 371 [Okanagan]).

As such, these questions of law are subject to appellatereview on the standard of correctness (Housen at paras 8–9 and 33). [62] An appellate court may also intervene where a judge who is vested with a discretionary authority has failed to give any orsufficient weight to a consideration that is relevant to its exercise (Penner v Niagara (Regional Police Services Board), 2013 SCC 19 atpara 27, [2013] 2 SCR 125; MiningWatch Canada v Canada (Fisheries and Oceans), 2010 SCC 2 at para 43, [2010] 1 SCR 6; Strom vSaskatchewan Registered Nurses’ Association, 2020 SKCA 112 at para 60, [2020] 12 WWR 396 [Strom]; Kot v Kot, 2021 SKCA 4 atparas 15–19 [Kot]; and Fontaine at para 36) or where the judge has made a palpable and overriding error when assessing the evidence(Okanagan at para 43; Strom at paras 60–63; Rimmer at para 58 refers to such errors as “disregard [of] a material matter of fact”). [63] The Court recently summarised the foregoing in Kot: [20] In

summary, these cases confirm that appellate intervention in a discretionary decision is appropriate where the judge made apalpable and overriding error in their assessment of the facts, including as a result of misapprehending or failing to consider materialevidence. Appellate intervention is also appropriate where the judge failed to correctly identify the legal criteria which governed theexercise of their discretion or misapplied those criteria, thereby committing an error of law. Such errors may include a failure to give anyor sufficient weight to a relevant consideration. D.

In Evidentiary Matters [64] In each appeal and cross-appeal, the parties have raised questions as to the admissibility of evidence, the relevance of evidence,or the application of exclusionary rules of evidence.

Although the standard of review relating to the admission of evidence depends on thenature of the question, questions of the nature raised in these matters are typically questions of law and, therefore, would be subject to thestandard of correctness: Southam at para 41; Hess v Thomas Estate, 2019 SKCA 26 at para 30, 433 DLR (4th) 60; and Donald J.M.Brown, Civil Appeals, loose-leaf (Rel 2020-4) vol 2 (Toronto: Thomson Reuters, 2019) at para 12:5320. However, we find no need toaddress the standard of review relating to these evidentiary issues any further.

Given our conclusions as to the proper scope of admissibleevidence about the circumstances surrounding contract formation in relation to issues of standard form contract

interpretation, theevidence proffered by the parties is by and large irrelevant and inadmissible. V. THE SATTVA APPROACH A. Consensus Ad Idem [65] In the language of appellate review, these appeals are about determining whether the Judge erred in his

interpretations of theULPs. Cast in terms of the standard of review, the question is whether the Judge correctly identified the applicable law—which, in thesematters, is limited to the principles of contract

interpretation—and correctly applied the law to the facts. [66] To answer those questions, we must first identify the Judge’s target, which may be simply done. The goal of all contractinterpretation is to ascertain consensus ad idem. Consensus ad idem—a phrase that, like many Latin phrases, has largely fallen into disuseby Canadian courts—is the “meeting of the minds” between or among the parties to a contract.

Consensus ad idem arises when all partiesunderstand and accept the contractual commitments each party has made to the others (Jedfro Investments (U.S.A.) Ltd. v Jacyk, 2007 SCC55 at para 17, [2017] 3 SCR 679, citing with approval Paal Wilson & Co. A/S v Partenreederei Hannah Blumenthal (1982), [1983] 1 AllER 34 (HL) [Paal Wilson]). In Paal Wilson, Lord Diplock wrote (at 48–49):

… To create a contract by exchange of promises between two parties where the promise of each party constitutes the consideration for thepromise of the other what is necessary is that the intention of each as it has been communicated to and understood by the other (eventhough that which has been communicated does not represent the actual state of mind of the communicator) should coincide.

That is whatEnglish lawyers mean when they resort to the latin phrase consensus ad idem and the words that I have italicised are essential to theconcept of consensus ad idem, the lack of which prevents the formation of a binding contract in English law. (Emphasis in original) [67] There can be no enforceable contract without consensus ad idem. The concept it expresses underpins the fundamentalrequirements of contract formation, namely, offer, acceptance, consideration and communication.

It holds that every party to anenforceable contract must have the same understanding as to the content of each of its fundamental requirements. For an enforceablecontract to come into existence, the parties must reach consensus ad idem as to what has been offered and accepted and as to theconsideration therefor. This can only occur where those promises have been communicated to, and understood by, all of the parties.Consensus ad idem is essential to contract formation and enforcement and it is, therefore, the object of contract

interpretation. [68] In the appellate jurisprudence, the phrase consensus ad idem is now generally described in terms of the intentions or trueintentions or mutual intentions or objective intentions of the parties at the time they entered into the contract (Teal Cedar SCC at para 57;Ledcor at paras 33 and 38; Sattva at paras 55 and 57; Jesuit Fathers of Upper Canada v Guardian Insurance Co. of Canada, 2006 SCC 21at para 27, [2006] 1 SCR 744; Eli Lilly & Co. v Novopharm Ltd., (SCC), [1998] 2 SCR 129 at paras 54 and 56 [EliLilly]; Consolidated-Bathurst Export Ltd. v Mutual Boiler and Machinery Insurance Co., (SCC), [1980] 1 SCR 888 at901 [Consolidated-Bathurst]; Gilchrist v Western Star Trucks Inc., 2000 BCCA 70 at para 17, 73 BCLR (3d) 102 [Gilchrist]; Davidson vAllelix Inc. (1991), (ON CA), 86 DLR (4th) 542 (Ont CA) at 547; Swan Text at 259; Hall Text at 9–13; McCamus Textat 801–803; Gerald H.L.

Fridman, The Law of Contract in Canada, 6th ed (Toronto: Carswell, 2011) at 13–17 [Fridman Text]; and S.M.Waddams, The Law of Contracts, 7th ed (Toronto: Thomson Reuters, 2017) at 97–103). [69] However, and this must be kept front of mind at all times, the issue is not what the parties subjectively understood or intended,or later came to think the agreement was (see, for example, Halifax (Regional Municipality) v Canadian National Railway Company, 2014NSCA 104 at paras 57 and 63, 353 NSR (2d) 18; see also Eli-Lilly at para 54).

Unlike statutes[4] or constitutional documents[5], themeaning of a contract is fixed at the time of its formation—it does not come to mean something else over time. As the learned authorstates in the Hall Text (at 50–51): It is a fundamental precept of the law of contractual

interpretation that the exercise is objective rather than subjective. “The goal ininterpreting an agreement is to discover, objectively, the parties’ intention at the time the contract was made.” [Emphasis added.] Theobjective approach applies to both the words of the contract and their context.

Therefore, the exercise is not to determine what the partiessubjectively intended but what a reasonable person would objectively have understood from the words of the document read as a wholeand from the factual matrix. “Bearing in mind the relevant background, the purpose of the document, and considering the entirety of thedocument, what would the parties to the document reasonably have understood the contested words to mean?” [Emphasis added.] Putanother way, “[i]n interpreting a contract, what is relevant is the parties’ outward manifestations…”. … The objective nature of the endeavour affects the entire interpretive exercise.

It defines the perspective for

interpretation—the words intheir context mean not what the parties subjectively believe them to mean but rather what a reasonable third party would take them tomean—and renders evidence of subjective intention absolutely inadmissible. (Footnotes omitted; emphasis in original, italics emphasis added) [70] Similarly, in the Fridman Text, the learned professor states (at 15–16): … The law is concerned not with the parties’ intentions but with their manifested intentions.

It is not what an individual party believed orunderstood was the meaning of what the other party said or did that is the criterion of agreement; it is whether a reasonable man in thesituation of that party would have believed and understood that the other party was consenting to the identical terms. As Fraser C.J.A. saidin Ron Ghitter Property Consultants Ltd. v.

Beaver Lumber Co. [(2003), 2003 ABCA 221 , 17 Alta LR (4th) 243 at 249 (CA)]: …the parties will be found to have reached a meeting of the minds, in other words be ad idem, where it is clear to the objective reasonablebystander, in light of all the material facts, that the parties intended to contract and the essential terms of that contract can be determinedwith a reasonable degree of certainty. Sometimes it is a simple matter to decide what the parties have manifested to each other, and consequently, whether they have agreed, andif so, upon what.

This is especially true where a document containing their agreement has been prepared and signed by the parties. If theplain wording of the document reveals a clear and unambiguous intent, it is not necessary to go further.

Indeed, once that has been done, itmay not be possible to have recourse outside such document, either to other written material or to parol evidence from the parties oranyone else, in order to explain, or otherwise clarify what is contained in the document. (Footnotes omitted, emphasis added) [71] Regardless of nomenclature, “the role of courts in interpreting contracts is to give effect to the bargain by which the partiesintended to be bound”: Ruth Sullivan, Contract

Interpretation in Practice and Theory (2000), 13 SCLR (2d) 369 (QL) at para 24. As such,when asked to interpret a contract, the court’s principal objectives are to determine whether there was consensus ad idem at the time theparties purportedly made their contract and, if so, what it entailed. [72] In every case, contract

interpretation begins with the words of the contract, whether reduced to writing or not. To givemeaningful effect to consensus ad idem, the interpretive process must remain firmly grounded in the language chosen by the parties togovern their relationship. Contextual factors are used to assist with achieving an accurate

interpretation of the contract. Contextualassistance is gleaned from the contract itself and from the circumstances surrounding its formation, i.e., the factual matrix (Prenn v

Simmonds, [1971] 3 All ER 237 (HL) at 239–240 [Prenn]; and Sattva). However, because contract

interpretation involves the examinationof both text and context, interpretive friction may arise between the ordinary meaning of the text of a contract and the meaning suggestedby the factual matrix. [73] The first principle of contract

interpretation is that the parties to a contract are presumed to have intended what the text of thecontract actually says (Eli Lilly at para 56; Heritage Capital at para 47; Fischbach & Moore of Canada Ltd. v Noranda Mines Limited,Potash Division (1971), (SK CA), 19 DLR (3d) 329 (Sask CA); UMA/B&V Ltd. v SaskPower International Inc., 2007SKCA 40 at para 26, [2007] 6 WWR 277, leave to appeal to SCC refused, ; Salah v Timothy’s Coffees of the WorldInc., 2010 ONCA 673 at para 16, 268 OAC 279; Goodlife Fitness Centres Inc. v Rock Developments Inc., 2019 ONCA 58 at para 15;Fridman Text at 436–438; and Hugh G.

Beale, ed, Chitty on Contracts, 31st ed, vol 1 (London: Sweet and Maxwell, 2012) at 932). This isthe cardinal presumption of contract

interpretation and it places the written agreement of the parties at the core of the interpretive process. [74] Under a strict textualist approach, the words of the contract is where

interpretation starts and ends. Strict textualism is not thelaw in Canada. The proper approach to contract

interpretation is that outlined by Rothstein J. in Sattva. It is our view that the Sattvaapproach—with the caveat set out below—establishes the general framework for the

interpretation of all contracts under Canadian law.[6] [75] Under the approach outlined in Sattva, this cardinal presumption remains and the interpreting court also looks outside the textof the contract to objective evidence of the mutual intention of the parties to assist with the

interpretation of the text. This is the approachconsistently taken by Canadian courts (see, for examples, Sattva at para 57; Eli Lilly at paras 54–56[7]; BG Checo International Ltd. vBritish Columbia Hydro and Power Authority, (SCC), [1993] 1 SCR 12 at 23–24 [BG Checo]; Pacific NationalInvestments Ltd. v Victoria (City), 2004 SCC 75 at para 31, [2004] 3 SCR 575; Spencer Health Network Inc. v Co-operators LifeInsurance Company, 2018 SKQB 244 at paras 73–79; Swan Text at 259; Hall Text at 9–13; and McCamus Text at 805–808).

We note thatthis approach was most recently affirmed by the Supreme Court in the context of post-incorporation contracts in Owners, Strata Plan LMS3905 v Crystal Square Parking Corp., 2020 SCC 29, 450 DLR (4th) 105, where Côté J. said: [37] To conclude, the applicable test for finding that a post-incorporation contract exists is the same as the one for finding that anyother agreement exists at common law.

The test is objective, and the offer, acceptance, consideration and terms may be inferred from theparties’ conduct and from the surrounding circumstances. [76] Finally, we are aware that, in Ledcor, Wagner J. affirmed the existence of and applied the “governing principles ofinterpretation applicable to insurance policies…summarized by Rothstein J. in Progressive Homes” (at para 49). Similarly, we recognisethat there are special principles for interpreting certain other categories of contract, including employment contracts, performance bonds,guarantees and releases, etc.

If we are correct in holding that there is a single, general framework for the

interpretation of all contracts,these specialised principles, including those summarised in Progressive Homes Ltd. v Lombard General Insurance Co. of Canada, 2010SCC 33, [2010] 2 SCR 245 [Progressive Homes], which received great attention from the parties in these matters, must be reconciled withthe dicta in Sattva.

It is our view such a reconciliation is possible, as we agree with the statement in the Hall Text that apparent exceptionsto Sattva can generally be explained as resulting from a principled application of the Sattva approach in the context of the type of contractin question. [77] However, it is not necessary to deal further with the Progressive Homes framework because, as we have noted above and willmore fully explain below, the issues of standard form contract

interpretation before us in these matters do not engage with those principlesand, in particular, do not relate to a commercial insurance contract of the kind considered in Ledcor. B. The Factual Matrix [78] In addition to the contested aspects of the text of the contract, the contract as a whole, ordinary dictionaries, style guides and therules of grammar (which are interpretive aids under a textualist approach), the interpreting court must examine the relevant factual matrix,i.e., the circumstances surrounding contract formation. When describing this aspect of the analysis in Sattva, Rothstein J. wrote: [47] …[T]he

interpretation of contracts has evolved towards a practical, common-sense approach not dominated by technical rules ofconstruction. The overriding concern is to determine “the intent of the parties and the scope of their understanding” (Jesuit Fathers ofUpper Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21, [2006] 1 S.C.R. 744, at para. 27, per LeBel J.; see also TerconContractors Ltd. v.

British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69, at paras. 64-65, per Cromwell J.).To do so, a decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistentwith the surrounding circumstances known to the parties at the time of formation of the contract.

Consideration of the surroundingcircumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alonedo not have an immutable or absolute meaning: No contracts are made in a vacuum: there is always a setting in which they have to be placed. ...In a commercial contract it is certainlyright that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of thetransaction, the background, the context, the market in which the parties are operating. (Reardon Smith Line, at p. 574, per Lord Wilberforce) [48] The meaning of words is often derived from a number of contextual factors, including the purpose of the agreement and the natureof the relationship created by the agreement (see Moore Realty Inc. v.

Manitoba Motor League, 2003 MBCA 71, 173 Man. R. (2d) 300, atpara. 15, per Hamilton J.A.; see also Hall, at p. 22; and McCamus, at pp. 749-50). As stated by Lord Hoffmann in Investors CompensationScheme Ltd. v. West Bromwich Building Society, [1998] 1 All E.R. 98 (H.L.): The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of itswords.

The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those wordsagainst the relevant background would reasonably have been understood to mean. [p. 115] [79] See also Prenn, where Lord Wilberforce wrote (at 239–240):

In order for the agreement of 6th July 1960 to be understood, it must be placed in its context. The time has long passed when agreements,even those under seal, were isolated from the matrix of facts in which they were set and interpreted purely on internal linguisticconsiderations. ...We must ...enquire beyond the language and see what the circumstances were with reference to which the words wereused, and the object, appearing from those circumstances, which the person using them had in view. … [80] The House of Lords more recently addressed the breadth of evidence relevant to contract

interpretation in InvestorsCompensation Scheme Ltd. v West Bromwich Building Society, [1998] 1 WLR 896 (HL) at 913 [Investors Compensation], where LordHoffman described the factual matrix as including “absolutely anything which would have affected the way in which the language of thedocument would have been understood by a reasonable man” (at 913). However, Lord Hoffman also confirmed that “absolutely anything”does not include evidence of previous negotiations between the parties and evidence of the parties’ subjective intentions.

Critically, heobserved that background facts must have been reasonably available to all parties at the time of contracting (at 913). [81] Drawing on this, Rothstein J. described

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