Supreme Court Rejects Jean-Paul Sartre in Interpreting Standard Form Contracts
In Sabean v. Portage La Prairie Mutual Insurance Co., the Supreme Court of Canada was recently called upon to determine the meaning of a clause in a standard form contract.
Standard form contracts are not like “regular” contracts. Their content is not unique to an individual case; rather, the wording in standard form contracts could govern the contractual relationships of thousands of people.
The Supreme Court recognized the uniqueness of standard form contracts last year, in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co. In that case, the majority wrote that the interpretation of standard form contracts has “precedential value” (at para. 43). It continued: “Establishing the proper interpretation of a standard form contract amounts to establishing the ‘correct legal test’, as the interpretation may be applied in future cases involving identical or similarly worded provisions.”
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Existentialism is a philosophical school of thought that is characterized by the notion that existence precedes essence. While religious doctrine, for instance, might posit that there is a pre-existing “soul” that determines one’s essential character, existentialism posits that we are nothing more and nothing less than what we actually live.
Traditional contract theory, based on the “meeting of the minds”, has an existentialist tilt to it. In this view, there is no contractual essence that exists in the abstract, and which precedes what the contracting parties themselves negotiate. The contract does not exist until both contracting parties come into the picture, and agree on defined content. As such, the contract is nothing more and nothing less than what the contracting parties make it. The goal of traditional contractual interpretation is to figure out what meaning was infused by the parties themselves.
But Ledcor Construction suggests that standard form contracts are different. They are not simply the concrete manifestations of the will of two people. They have meaning beyond the two parties. They require an interpretation that lives beyond the individual instance, and “may be applied in future cases involving identical or similarly worded provisions”.
Unlike a “regular” contract, the essence of a standard form contract actually precedes any meeting of the minds between two parties.
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Which brings us to Sabean.
In this case, the Supreme Court was called upon to determine whether the Canada Pension Plan was a “policy of insurance” under an insurance policy endorsement. The endorsement was standard form, and thus was not the creation of two specific contracting parties. The Supreme Court had to figure out what “policy of insurance” encompassed, and it needed to come up with a rule that would apply to all individuals bound by the endorsement.
The Nova Scotia Court of Appeal had relied upon considerations of policy and Supreme Court precedent to determine the meaning of the endorsement. The Supreme Court rejected its conclusion, however, in favour of an interpretation that privileged the “ordinary meaning” that an “average person” would consider: para. 28.
Crucially, both paradigms – from the Court of Appeal and from the Supreme Court – eschewed an analysis of the individual intentions of the specific parties implicated in the case. Being a standard form contract, the endorsement was bigger than the specific people who were relying on it in a given case. The Court was not going to reduce the standard form to what the specific individual subscribing to the insurance policy, in the case at bar, thought it meant.
The meaning of the endorsement – its essence – was determined even before Mr. Sabean signed on the dotted line, even before his specific contract was formed. When interpreting standard form contracts, courts will seek out that essence – beyond the specific parties themselves.
As stated in paragraphs 28 and following in Ledcor Construction:
While a proper understanding of the factual matrix is crucial to the interpretation of many contracts, it is often less relevant for standard form contracts, because “the parties do not negotiate terms and the contract is put to the receiving party as a take-it-or-leave-it proposition”: MacDonald, at para. 33.
Parties to an insurance contract may negotiate over matters like the cost of premiums, but the actual conditions of the insurance coverage are generally determined by the standard form contract: Billingsley, at p. 58.
I agree that factors such as the purpose of the contract, the nature of the relationship it creates, and the market or industry in which it operates should be considered when interpreting a standard form contract. However, those considerations are generally not “inherently fact specific”: Sattva, at para. 55. Rather, they will usually be the same for everyone who may be a party to a particular standard form contract.
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In Québec, article 1425 of the Civil Code states:
The common intention of the parties rather than adherence to the literal meaning of the words shall be sought in interpreting a contract.
It remains to be seen whether Ledcor Construction and Sabean – both of which are Common Law cases – displace the existentialist paradigm inherent in that article when dealing with standard form contracts. But early indications suggest an affirmative response.
A few weeks ago, the Québec Court of Appeal followed the Ledcor Construction approach in considering the standard of review applicable on appeal. Finding that it was not dealing with a standard form contract, the Court cited the Supreme Court in holding that “ce qui doit avoir préséance en l’espèce ce sont « les intentions des parties en cause exprimées dans le libellé particulier du contrat » ” (para. 10). The clear implication was that if the contract was a standard form, other principles of interpretation would apply.
Standard form contracts seem therefore to be a curious case of essentialism in an area of the law dominated by an otherwise existentialist approach.