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Interpretation of contracts: How legal drafting affects litigation outcomes

Interpretation of contracts: How legal drafting affects litigation outcomes

Why do lawyers draft long sentences?

This issue implicitly came before the Honourable Clément Samson J.C.S. in HSBC Bank Canada v. Gareau, 2015 QCCS 3781.

The background to this case is a loan made by HSBC to a numbered company, further to representations made by Claudia Samson and Jessica Gareau. The loan was personally guaranteed by Steve Samson and another individual, Éric Genest. The company missed payments on the loan, and HSBC started proceedings against Steve Samson and Éric Genest, while seeking that the company be declared bankrupt.

Steve Samson’s guarantee on the loan was only $62,500; the company owed over $200,000. He ended up paying $102,500 to HSBC, and the two parties entered into an agreement stating that:

En conséquence de ce paiement, le subrogeant [HSBC] donne quittance complète à la débitrice [9190] et subroge le subrogé [Steve Samson], sans garantie de faire valoir et à ses risques et périls, dans tous les droits, recours, actions, hypothèques ou sûretés lui résultant notamment de l’acte plus haut relaté aux paragraphes 1 et 2[2], jusqu’à concurrence de la contrepartie versée.

After the agreement was signed, HSBC sued Claudia Samson and Jessica Gareau in connection with the representations they made when the credit was extended to the company. The Defendants argued that HSBC’s release operated to their benefit, and they could not be sued based on the loan.

The Defendants sought the preliminary dismissal of HSBC’s action on this basis. The Court had to analyze the release that was given and decide whether HSBC could be blocked, at an early stage and before any trial was held, from suing the Defendants.

HSBC pleaded that it never actually provided a full release. In its view, the agreement resulted in Steve Samson having a cause of action for up to $102,500, while HSBC itself retained an action for the remaining damages – including a recourse against the Defendants in extra-contractual liability. As HSBC put it: “Dans ces circonstances, la Demanderesse n’a jamais quittancé le solde impayé du prêt et ce faisant, les Défenderesses ne peuvent se prévaloir d’une quittance qui n’a jamais été accordée par la Demanderesse”.

The Court was not persuaded. It queried why a “complete” release was offered if HSBC believed the company itself could still be sued on the loan.

For its part, HSBC argued that a release said to be complète is not the same as a release that it complète, générale et finale. And it is here that we gain some insight into our original question: Why do lawyers draft long sentences?

Some believe that lengthy wording in legal releases is necessary in order for courts to properly understand the parties’ true intentions. While substantive complexity may indeed demand elaborate drafting, this should not be the case for a straight-forward release. The Court’s reasoning in this case should give pause to lawyers who insist on drafting each contractual clause with synonyms in triplicate.

Put simply, a release does not need to be verbose in order to be effective:

[25] Troisième argument. HSBC plaide qu’une quittance complète ne veut pas dire quittance complète, générale et finale. Cette inflation de mots que l’on retrouve habituellement dans des procédures qui mettent fin à un litige fait perdre le sens du mot « quittance ». Le Code civil du Québec contient un seul article qui présente un seul qualificatif associé au mot « quittance » :

« 3065. La quittance totale d’une créance emporte le consentement à la radiation. La quittance partielle n’entraîne que le consentement à une réduction équivalente. »

[26] Lorsque le rédacteur de la quittance sous étude utilise le mot « complète », il choisit un synonyme de « totale ». Que peut-on demander de plus que d’affirmer qu’il s’agit d’une quittance complète ?

Advocates of brevity may rejoice.

But not for too long.

The Court ultimately refused to dismiss HSBC’s action. The Court held that a full factual inquiry was necessary in order to determine whether the extra-contractual recourse launched by HSBC against the Defendants was included in the scope of the release.

In the end, the simplicity of the release could only get the Defendants so far. HSBC raised an issue of interpretation that the Court felt it could not answer based purely on the text of the release. Because this question would best be resolved through evidence at trial, HSBC’s case therefore survived the motion to dismiss.

What emerges from this case is a picture of legal drafting that requires balance. Succinct drafting will minimize the ambiguities that arise within a legal text. But sometimes added complexity is needed in order to ensure that legal text covers the entire universe of possibilities intended by the parties.

It is rare for a contract to boast both the clarity and the comprehensiveness necessary to obviate the need for trial. HSBC Bank Canada v. Gareau is a good illustration.

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