On 1 August 2014, the Supreme Court of Canada released its decision in Sattva Capital Corp. v. Creston Molly Corp, 2014 SCC 53. The decision in Sattva is relevant both to the drafting of commercial contracts and to how arbitrators/courts should interpret commercial contracts. The overarching theme of Sattva is a ‘practical, common sense’ approach to the interpretation of contracts.

The Supreme Court of Canada’s decision arose in the context of an arbitration that was commenced to by Sattva Capital. Sattva Capital had assisted Molly Creston in obtaining mining rights in Mexico, and was entitled to a finder’s fee equivalent to C$1.5m. The finder’s fee was payable in shares of Molly Creston. The contractual question that arose was the valuation date that was applicable in determining how many shares Sattva Capital should be paid.

Historically in Canada, the interpretation of contracts has been viewed as a question of law. This approach emphasised technical rules of construction in deriving the meaning of a contract. Additionally, by labelling contractual interpretation a question of law, appellate courts were free to substitute their own interpretation of contracts when they disagreed with the findings made by trial courts.

This approach to contractual interpretation has gradually shifted in Canada. In Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21, the Supreme Court held that a court’s principal task in interpreting a commercial contact is to determine “the intent of the parties and the scope of their understanding”.

Oct-Dec 2014 issue

Lenczner Slaght