The SCC on the parol evidence rule

(c)      Considering the Surrounding Circumstances Does Not Offend the Parol Evidence Rule

[59]      It is necessary to say a word about consideration of the surrounding circumstances and the parol evidence rule.  The parol evidence rule precludes admission of evidence outside the words of the written contract that would add to, subtract from, vary, or contradict a contract that has been wholly reduced to writing (King at para. 35; and Hall, at p. 53). To this end, the rule precludes, among other things, evidence of the subjective intentions of the parties (Hall, at pp. 64-65; and Eli Lilly & Co. v. Novopharm Ltd., 1998 CanLII 791 (SCC), [1998] 2 S.C.R. 129, at paras. 54-59, per Iacobucci J.). The purpose of the parol evidence rule is primarily to achieve finality and certainty in contractual obligations, and secondarily to hamper a party’s ability to use fabricated or unreliable evidence to attack a written contract (United Brotherhood of Carpenters and Joiners of America, Local 579 v. Bradco Construction Ltd., 1993 CanLII 88 (SCC), [1993] 2 S.C.R. 316, at pp. 341-42, per Sopinka J.).

[60]      The parol evidence rule does not apply to preclude evidence of the surrounding circumstances. Such evidence is consistent with the objectives of finality and certainty because it is used as an interpretive aid for determining the meaning of the written words chosen by the parties, not to change or overrule the meaning of those words. The surrounding circumstances are facts known or facts that reasonably ought to have been known to both parties at or before the date of contracting; therefore, the concern of unreliability does not arise.

[61]     Some authorities and commentators suggest that the parol evidence rule is an anachronism, or, at the very least, of limited application in view of the myriad of exceptions to it (see for example Gutierrez v. Tropic International Ltd. 2002 CanLII 45017 (ON CA), (2002), 63 O.R. (3d) 63 (C.A.), at paras. 19-20; and Hall, at pp. 53-64).  For the purposes of this appeal, it is sufficient to say that the parol evidence rule does not apply to preclude evidence of surrounding circumstances when interpreting the words of a written contract.

Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 per Rothstein J.

In passing, somebody far more competent than I am to comment on contract law was also not at all impressed with paras 59-61. That person suggests the discussion is not at all helpful;  “fill[s] me with despair” was one of the descriptions used.

I’m cynical enough to believe the passage will produce more work for appellate lawyers. That’s a good thing, right?

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2 comments

  1. David Cheifetz

    Find out what the judge likes for breakfast? Paraphrasing a Tina Turner song “What’s law got to do with it?”

    We always tell the clients that if the judge or jury finds these facts, and if the law is applied properly, then this is what the law requires the result to be. But …

    Sattva seems, in this respect, to continue the SCC’s trend (on the civil side) displayed in Clements and Ediger of emphasis on the appellate courts’ obligation to defer to the primary tribunals’ fact finding.

  2. Brian Babcock

    More work for appeal lawyers, maybe, but especially, more work potentially for trial lawyers- if the cases are all about the facts, ad nothing turns on law (admittedly an extreme and cynical take on what the court says) then how do you advise clients what the result will be without taking everything to trial?

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