QUEEN’S BENCH FOR SASKATCHEWAN  
Citation: 2019 SKQB 76  
Date:  
2019 03 15  
Docket:  
Judicial Centre:  
QBG 1597 of 2016 / QBG 1519 of 2017  
Saskatoon  
___________________________________________________________________________  
BETWEEN:  
MOSTEN INVESTMENT LP  
Appellant  
- and -  
THE MANUFACTURERS LIFE INSURANCE COMPANY  
o/a MANULIFE FINANCIAL  
Respondent  
Counsel:  
Gordon J. Kuski, Q.C., Ronald L. Miller, Q.C.,  
Nolan J. Dooley and Amanda M. Quayle  
for Mosten Investment LP  
Linda Plumpton and Crawford Smith  
for The Manufacturers Life Insurance  
Company o/a Manulife Financial  
Eliot N. Kolers and Sinziana R. Hennig  
for the intervenor, Canadian Life and Health  
Insurance Association  
Table of Contents  
Introduction ........................................................................................................................................ 1  
A Regulatory Intervention and Its Impact ....................................................................................... 4  
Core Issues to Decide ....................................................................................................................... 12  
Facts in Brief ..................................................................................................................................... 14  
The Mosten 1 and Mosten 2 Applications ...................................................................................... 22  
The Law Respecting Contractual Interpretation .......................................................................... 31  
- Mosten 2 -  
1.  
2.  
3.  
The fundamental precepts of contract interpretation ............................................................ 31  
Principles of interpretation specific to insurance contracts ................................................. 36  
The law respecting interpretation of Standard Form Contracts ........................................... 37  
Sattva .............................................................................................................................. 39  
Ledcor ............................................................................................................................. 43  
Sabean ............................................................................................................................. 53  
(a)  
(b)  
(c)  
The Contract Language to be Interpreted ..................................................................................... 56  
The Parties’ Positions on the Proper Interpretation ..................................................................... 57  
1.  
2.  
3.  
Mosten’s position on the interpretive principles to apply ..................................................... 59  
Manulife’s position on the interpretive principles to apply .................................................. 63  
The parties’ disagreement on the applicable interpretive principles .................................... 66  
The Context to be Considered at Stage 1 Interpretation of the Contract ................................... 72  
Stage 1 Interpretation of the Contract ........................................................................................... 87  
1.  
2.  
Mosten’s Stage 1 interpretation ............................................................................................ 87  
Manulife’s Stage 1 interpretation .......................................................................................... 88  
My Stage 1 Interpretation ................................................................................................................ 89  
My Stage 1 Conclusion ................................................................................................................... 110  
My Reasons for This Interpretation and Conclusions ................................................................. 118  
1.  
2.  
The insurance context meaning of “premiums” .................................................................. 118  
Harmonization of this interpretation of “premiums” with the balance of the contract ...... 132  
Stage 2 of the Interpretation .......................................................................................................... 135  
What are the Applicable Principles of General Contract Construction? ................................. 138  
1.  
2.  
Subsequent conduct considerations ..................................................................................... 143  
Parties are presumed to intend the legal consequences of their words  
and the use of dictionaries .................................................................................................... 146  
3.  
4.  
5.  
Precedent and prior case law .............................................................................................. 149  
Commercial certainty .......................................................................................................... 154  
Illegality and the use of interpretation to avoid it ............................................................... 155  
The Special Principles for Interpretation of Insurance Policies ................................................ 161  
My Stage 2 Interpretation Conclusion ......................................................................................... 178  
Mosten 2 .......................................................................................................................................... 182  
My Analysis of the Mosten 2 Application and Decision Thereon .............................................. 187  
1.  
I decline jurisdiction to grant the declaratory relief sought in Mosten 2 ............................ 187  
The Discretionary Nature of Declaratory Relief ......................................................................... 188  
- Mosten 3 -  
Declaratory Relief and Discretion Generally ............................................................................... 207  
Is Mosten Outside the Two-Year Limitation Period? ................................................................. 213  
If I am Wrong to Decline Jurisdiction, My Alternative Decisions ............................................. 223  
1.  
On the proper interpretation of the Income Tax Act and Regulations ................................ 223  
The Evidentiary Issues ................................................................................................................... 246  
1.  
The applicable law and analysis of the objections .............................................................. 255  
The Michaud affidavit ................................................................................................... 259  
Other affidavits and objections thereto ......................................................................... 262  
(a)  
(b)  
The Regulatory Issues and Analysis ............................................................................................. 291  
1.  
2.  
The interpretation of regulations an overview of the law and applicable principles ....... 291  
The Regulation .................................................................................................................... 311  
My Analysis and Conclusions ........................................................................................................ 313  
1.  
On the variable insurance contract issue ............................................................................ 313  
Whether the Regulation has other than prospective effect .................................................. 322  
Is the Regulation declaratory of the law? ..................................................................... 322  
The vires issue ............................................................................................................... 329  
2.  
(a)  
(b)  
(c)  
Purposive analysis and interpretation of the Regulation assuming the Lieutenant  
Governor had the authority to pass retroactive regulations ......................................... 337  
Conclusion on the Regulatory Issues ............................................................................................ 356  
Conclusion ....................................................................................................................................... 357  
___________________________________________________________________________  
JUDGMENT  
SCHERMAN J.  
March 15, 2019  
___________________________________________________________________________  
Introduction  
[1]  
By originating applications (a form of summary procedure), Mosten  
Investment LP [Mosten] asks the court to make declarations in respect of a contract  
between it and The Manufacturers Life Insurance Company, operating as Manulife  
Financial [Manulife]. Reduced to their essence, the declarations Mosten seeks would  
interpret the contracts as having distinct life insurance and investment entitlements or  
- Mosten 4 -  
purposes and declare that Mosten is entitled to pay premiums, in such amounts as it  
chooses, into investment options provided for in the contracts. Among the investment  
options provided for in the contract are 10-year GIC-type investments that could pay  
interest at the rate of 4 percent per annum or higher. Such a rate would be very  
attractive to investors in the current interest rate environment.  
[2]  
Manulife opposes the declarations sought. Their position is that the  
purpose of the contracts in question, so-called Universal Life Insurance policies, is to  
provide life insurance and investments that are accrual tax exempt within such exempt  
limits as the Income Tax Act, RSC 1985, c 1 (5th Supp), permits for life insurance  
policies. Put another way, Manulife says the investment opportunities provided by the  
contracts are inextricably linked to the core life insurance purpose and the investment  
opportunities provided are limited to investments within the exempt policy criteria  
under the Income Tax Act and its regulations (Income Tax Regulations, CRC, c 945)  
and/or to fund future life insurance premiums payable under the policy terms. They  
say the contracts or policies were never intended to permit insured parties to access  
investment opportunities, as distinct or stand-alone investment rights, unconnected to  
the core life insurance purpose of the contracts.  
[3]  
This action was heard at the same time as two other proceedings  
brought by related entities Atwater Investment LP [Atwater] and Ituna Investment LP  
[Ituna] against BMO Life Assurance Company and Industrial Alliance Insurance and  
Financial Services Inc. respectively in which similar declarations or relief are sought  
by the applicants. Each of these insurers issued Universal Life Insurance policies  
which have similar provisions to the Manulife policies. Among other positions, the  
insurance companies say that should the relief sought be granted, they face potential  
liquidity or solvency concerns since they anticipate, on the basis of information  
conveyed to them by the principals of the insureds, that the applicants will be utilizing  
- Mosten 5 -  
the policies to deposit or invest unlimited amounts of monies to access the specific  
interest rate provided. The Canadian Life and Health Insurance Association has  
intervened in each of the proceedings and advances the position that Universal Life  
Insurance policies were never intended to provide, nor should they be interpreted so  
as to permit the insureds, the investment opportunities the insureds seek in these  
proceedings.  
A Regulatory Intervention and Its Impact  
[4]  
The decision in each of the Ituna, Mosten and Atwater actions had been  
on reserve less than 30 days when the Lieutenant Governor’s Order in Council  
517/2018 was filed on October 26, 2018, as The Saskatchewan Insurance (Licence  
Condition) Amendment Regulations, 2018, Sask Reg 75/2018 [Regulation], under  
s. 467 of The Saskatchewan Insurance Act, RSS 1978, c S-26. The insurers take the  
position this Regulation makes the various applications of Ituna, Mosten and Atwater  
for declaratory relief moot. Therefore, they say I should, as an exercise of my  
discretion, dismiss the various applications.  
[5]  
The insurers say the Regulation makes the applications moot because  
the Regulation, with both retroactive and prospective operation:  
(a)  
(b)  
prohibits licensed insurers from receiving or accepting for  
deposit funds or payments in excess of the amount required to  
pay the “life insurance premium” for the “eligible period” of the  
contract;  
“life insurance premium” and “eligible period” are so defined as  
to apply to the subject policies and, in effect, prohibit the  
payment, into a life insurance policy or an associated side  
- Mosten 6 -  
account, of any monies which are not for the purpose of paying  
current or future premiums for the life insurance and current  
payment of amounts permitted to be held in a life insurance  
policy that is exempt from accrual taxation under the Income Tax  
Act; and  
(c)  
“deems” each contract for life insurance issued by a licenced  
insurer to contain the restrictions created by the Regulation.  
[6]  
Industrial Alliance, Manulife and BMO, with the support of the  
Canadian Life and Health Insurance Association [CLHIA] say the Regulation:  
(a)  
(b)  
is declaratory of what the law has always been as regards what  
constitutes a premium or premiums in the context of life  
insurance policies; or  
in the alternative, is valid retroactive or retrospective legislation  
which the Lieutenant Governor in Council passed pursuant to the  
authority he had under s. 467 of The Saskatchewan Insurance Act  
to address the mischief created by Ituna, Mosten and Atwater in  
these proceedings and for the protection of the life insured  
public.  
[7]  
Ituna, Mosten and Atwater take the position that:  
(a)  
(b)  
to interpret the Regulation as the insurers argue would make the  
Regulation ultra vires of the Lieutenant Governor in Council;  
on a proper interpretation of the Regulation, it is prospective in  
- Mosten 7 -  
operation only and does not affect their vested rights; and  
(c)  
in any event, if the Regulation has any retroactive or  
retrospective operation, there remain issues to be decided within  
their various applications.  
Ituna, Mosten and Atwater say that, in any event, I should decline to exercise any  
discretion I have to dismiss their application on the grounds of mootness and render  
my decisions on the applications heard before me in September 2018.  
[8]  
The parties’ positions with respect to the proper interpretation of the  
Regulation and their “mootness” positions were argued before me the week of  
February 11, 2019. There are, in effect, competing mootness issues that arise. As will  
be apparent, the issues the insurers take in respect of the effect of the Regulation are  
themselves effectively moot if I interpret the contracts as they argue I should.  
[9]  
Much concern was recently expressed of the need for “efficient use of  
judicial resources” and how and where that should factor into my decision on whether  
to render decisions on the grounds of mootness. I cannot help but observe the parties  
seem to be late converts to the dogmas concerning the efficient use of judicial  
resources.  
[10]  
Having regard to the following considerations:  
(a)  
(b)  
the time and investment made by the litigants and the court in the  
proceedings to date are, to use an accounting concept, “sunk  
costs”;  
appeals will likely be pursued given the very significant financial  
- Mosten 8 -  
implications for all parties;  
(c)  
given my interpretation conclusions, I could have taken an early  
exit and stopped my analysis at the end of my Stage 1  
interpretation of the contract. However, I concluded it to not be  
in the interests of the final resolution of the disputes nor an  
efficient use of judicial resources for me to not address the full  
range of the issues placed before me.  
(d)  
the potential combination and permutations of differing opinions  
or conclusions a court of appeal may have on the various issues  
could well result in an appeal court returning issues back to this  
Court to address or hear if a decision was not made in the first  
instance.  
(e)  
courts of appeal have frequently stated that they find helpful,  
perhaps even necessary, trial judgesassessments of all issues.  
Given the sequence of the decisions or opinions I have expressed, I concluded that it  
would not be an efficient use of judicial resources nor fulfillment of the  
responsibilities I have for me to not provide a trial judge’s analysis and conclusions  
on the bulk of the issues addressed before me.  
[11]  
I appreciate that, given what could be described as threshold  
conclusions, some of my following conclusions or opinions could be viewed as  
essentially obiter dicta. I do not view my conclusions following threshold conclusions  
as obiter. Rather, I view my judgment as a whole as addressing and deciding positions  
and arguments presented in the alternative that needed to be decided. In any event, I  
have chosen to engage on all issues and provided decisions on each with the objection  
- Mosten 9 -  
of providing the Court of Appeal with the ability to make a final determination on  
each issue that might be raised in an appeal.  
Core Issues to Decide  
[12]  
The central and overarching issue is the proper interpretation to be given  
to the standard form contract in issue. More specifically, the core issue is whether:  
(a)  
(b)  
the contract is a life insurance policy that permits limited  
investment within the exempt from accrual taxationcriteria  
established under the Income Tax Act; or  
a contract that provides both a policy of life insurance and  
unlimited investment, within and outside the exempt from  
accrual taxationcriteria established under the Income Tax Act.  
[13]  
Among the more prominent subsumed issues that need to be addressed  
during the interpretation exercises are the following:  
(a)  
(b)  
What is or are the purpose(s) of the subject contract?  
How is purpose to be determined? What, if any, “surrounding  
circumstance” evidence can be considered in determining the  
purpose(s) of the contract?  
(c)  
(d)  
What is the meaning to be given to the undefined terms  
“premiums” and “premium payments” as used in the contract?  
Does the contract language as a whole, and specifically language  
under the headings Carrier Fund and Payment of Premiums,  
provide the insured a right to pay unlimited sums of monies as  
premiums and have amounts in excess of:  
- Mosten 10 -  
(i)  
present and anticipated future cost of insurance, premium  
tax and management fees; and  
(ii) qualifying exempt from accrual taxation investments in  
Investment Accounts;  
invested in selected interest-bearing accounts within the Carrier  
Fund?  
Facts in Brief  
[14]  
While there are significant issues regarding what evidence is properly  
admissible, I do not need to address those issues at this stage of the decision. The  
parties are in fundamental agreement that under Sattva Capital Corp. v Creston Moly  
Corp., 2014 SCC 53, [2014] 2 SCR 633 [Sattva], which will be discussed in detail  
later, the permissible factual matrix does not include evidence of a contracting party’s  
subjective intention and the permissible factual matrix evidence consists only of  
objective facts known to the parties at or before the date of contracting. There is also  
agreement that a contract is to be interpreted as of the date it was made.  
[15]  
As indicated by the heading above, the objective of this section is to  
summarize the essential facts in brief and thereby provide a context for the following  
discussion of Stage 1 interpretation of the contract. The concept of Stage 1  
interpretation is discussed below.  
[16]  
The policy was issued on November 19, 1997, by Aetna Life Insurance  
Company of Canada as Policy No. F 2239527. Extracts from the policy language are  
attached to this decision as Appendix A. The policy in issue insured the life of one  
Dr. de Bruin for $1,000,000. At the time the policy issued, the stated total annual  
minimum premium was $1,072.30. Subsequently, on July 17, 1999, he added  
- Mosten 11 -  
accidental death benefit coverage in the amount of $250,000. Then in 2002, he  
reduced the sum insured to $175,000 as permitted by the death benefit change  
provisions of the contract.  
[17]  
The applicant, insured and beneficiary was Dr. Walter de Bruin.  
Manulife acquired the rights, liabilities and obligations of Aetna under the policy in  
2004. In 2010 Mosten purchased the policy from Dr. de Bruin by way of an  
assignment. Manulife recorded the assignment and acknowledged the change of  
ownership to Mosten on February 22, 2010. Mosten cancelled the accidental death  
benefit on Dr. de Bruin’s life, reduced the sum insured on his life to $101,000 and  
later further reduced it to $25,000. Mosten added Michael Hawkins as an insured life  
in a sum insured amount of $100,000. The death benefit selected by Mosten was  
“Sum Insured + Fund Value (last death)”. All of these changes were in accordance  
with the policy provisions and were accepted by Manulife.  
[18]  
As of July 19, 2010, the annual minimum premiums were stated to be  
$434.30 in respect of the then sum insured of $101,000 on the life of Dr. de Bruin and  
$530.00 in respect of the sum insured of $100,000 on the life of Michael Hawkins.  
[19]  
An illustration of a tax sheltered program was prepared for the policy by  
Aetna representatives under date of October 22, 1997, and acknowledged received by  
Dr. de Bruin on October 24, 1997, some three weeks before the policy was issued.  
This illustration assumed a sum insured of $1,000,000 and $12,000 in annual deposits  
from the 1st through the 29th years of the policy when Dr. de Bruin would be age 65.  
Based upon a level guaranteed cost of insurance of $3,510.00 per year and an  
assumed 8% return on excess of annual premiums deposited over the annual cost of  
insurance into the Fund Value, it projected a Fund Value of $1,198,193 at age 65 and  
$22,123,092 by age 100. This illustration clearly demonstrates the potential returns of  
an assumed 8% compounded annual interest. I take little guidance from this  
- Mosten 12 -  
illustration other than it demonstrates the policy being marketed as a tax-sheltered  
program and the indications therein provided that future annual cost of insurance  
beyond year 29 will be paid from monies accruing in the tax exempt growth within  
the Investment Accounts. The assumed 29 annual deposits of $12,000 constituted  
both prepayment of future cost of insurance charges and the investments in the  
tax-sheltered program.  
[20]  
To interpret this contract, as of the date the contract came into existence,  
I have only the language of the contracts itself, the original application and  
endorsements completed and permissible context or factual matrix evidence that will  
be discussed below in this decision.  
[21]  
Apart for one period in 2012-2013, the balance in the Carrier Fund (a  
policy feature outlined below) was zero until November 2016. During 2016, Mosten  
began to inquire whether payments could be made directly into the Carrier Fund,  
including a proposed payment of $1,000,000. Manulife declined to accept such  
payments, advising that the Carrier Fund was not intended to accept payments that  
had no prospect of being transferred back into the policy.  
The Mosten 1 and Mosten 2 Applications  
[22]  
In an Originating Application originally filed on November 23, 2016, as  
QBG 1597 of 2016, Judicial Centre of Estevan, later transferred to the Judicial Centre  
of Saskatoon and there consolidated with QBG 1519 of 2017 [Mosten 1], Mosten  
seeks declarations that it is entitled to invest amounts, with no limits, into  
guaranteed-interest options within the Carrier Fund of Policy No. F2239527 [527].  
[23]  
Subsequently, by a second Originating Application filed October 6,  
2017, as QBG 1519 of 2017, Judicial Centre of Saskatoon [Mosten 2], Mosten took  
- Mosten 13 -  
the position that Policy 527 never had or lost its status as a tax-exempt life insurance  
policy and as such there is no limit on the premiums or amounts Mosten can pay into  
the Investment Account of the Policy and thereby access the guaranteed interest  
options available within the Investment Accounts. In Mosten 2, it asks for declaratory  
relief that gives effect to this position.  
[24]  
Mosten 1 and Mosten 2 were consolidated by Order of this court, and  
continued in the Judicial Centre of Saskatoon within QBG 1519 of 2017. Subsequent  
to this consolidation, Mosten filed an application seeking leave to amend its  
Originating Application in Mosten 2. On August 2, 2018, on the filing of a Consent  
by the parties, Mosten was given leave to amend the Originating Application in  
Mosten 2 to clarify the grounds on which the application was made. This was done  
without amending the actual relief sought within Mosten 2. Mosten and Manulife  
have proceeded on the basis that, notwithstanding the consolidation, the Originating  
Applications in both Mosten 1 and Mosten 2 are before the Court for determination.  
[25]  
Mosten and Manulife each presented detailed, comprehensive and  
distinct submissions in respect of the relief sought in each of Mosten 1 and Mosten 2.  
[26]  
The relief sought in Mosten 1 is:  
(a) An order determining and declaring that Mosten has the  
following rights and privileges under Architect Classic  
IIe universal life insurance contract, Policy Number  
F 2239527 (the “Contract”):  
(i) that Mosten may make additional premium  
payments to the Contract in such amounts and at  
such times as Mosten determines;  
(ii) that there is no limit on the amount that can be held  
by or for Mosten in the Carrier Fund forming part of  
the Contract; and  
(iii) that the respondent, The Manufacturers Life  
- Mosten 14 -  
Insurance Company operating as Manulife  
Financial (“Manulife”) is not entitled to refund  
premiums or funds held in the Contract, either from  
the Investment Accounts or the Carrier Fund, in the  
absence of a request by Mosten;  
(b) An Order granting the applicant costs of this application.  
[27]  
The relief sought in Mosten 2 is:  
(a) An order determining and declaring that Mosten has the  
following rights and privileges under Architect Classic IIe  
universal life insurance contract, Policy Number F 2239527  
(the “Contract”):  
(i) That Mosten is entitled to have the Investment Bonus  
payable under the Contract calculated and credited on  
November 18 of each calendar year;  
(ii) That all funds paid to Manulife under the Contract are  
and shall be held in the Investment Accounts that  
comprise the Fund Value under the Contract and that  
Manulife is not entitled to transfer any funds, whether  
currently held or subsequently paid under the Contract,  
to the Carrier Fund;  
(iii) With no balance in the Carrier Fund, that Mosten is  
entitled to have the Investment Bonus payable under the  
Contract calculated on the Fund Value which shall  
represent all funds under the Contract;  
(iv) Manulife shall not be entitled to effect Additional Sum  
Insured and, as such, shall not be entitled to increase the  
amount of life insurance coverage under the Contract by  
up to eight percent each year (or by any percent) unless  
expressly instructed to do so by Mosten; and  
(v) That the Exempt Status and Carrier Fund provisions of  
the Contract cease to have any application to the  
Contract and that the Contract otherwise continues  
unaffected.  
(b) An Order granting the applicant costs of this application.  
[28]  
The submissions of Mosten and Manulife at the hearing first addressed  
the relief sought in Mosten 1 and, within those submissions, focused on the  
- Mosten 15 -  
interpretation to be given to the contract, with significant focus on Mosten’s position  
that anything paid by Mosten was a premium within the meaning of the policy and,  
thus, Mosten was entitled to access unlimited investments within the Carrier Fund.  
Then, as a distinct topic, the parties addressed the Mosten 2 claim that the Policy  
never had or lost its tax exempt status, with the consequence that Mosten could pay  
unlimited premiums for investment within the Investment Account of the Policy.  
[29]  
These latter submissions involved complex arguments with relation to  
interpretation of the Income Tax Act, the Income Tax Regulations and the contract  
language, all as it related to tax exempt status and requirements therefore. These  
submissions raised related issues as to whether or not Mosten 2 was brought within  
the applicable limitation period, whether the court had the jurisdiction to provide the  
declaratory relief sought and issues related to the discretionary nature of declaratory  
relief.  
[30]  
Consistent with the approach taken by counsel in their submissions to  
the Court, this decision will deal first with the relief sought in Mosten 1 and then  
address, in a distinct section, the issues and arguments arising from the relief sought  
in Mosten 2.  
The Law Respecting Contractual Interpretation  
1.  
The fundamental precepts of contract interpretation  
[31]  
The contract in question is a standard form contract and a contract in  
relation to insurance. Specific principles apply to the interpretation of contracts in  
each of these categories. Those principles need to be understood and applied against  
the background of the fundamental precepts of contract interpretation that apply to  
contracts generally. These precepts are not in dispute. A review of these fundamental  
- Mosten 16 -  
precepts is necessary instructions to myself before I engage in the specific  
interpretation exercise at hand.  
[32]  
With regard to efficient use of judicial resources and the folly of  
attempting to improve on a proven product, I utilize the leading textbook, Geoff R.  
Hall, Canadian Contractual Interpretation Law, 3d ed (Toronto: LexisNexis, 2016)  
[Hall], to summarize in this decision those fundamental precepts of contract  
interpretation. I quote or summarize the learned author’s discussion of those  
fundamental precepts I find apt for my own instruction in this case. I will, using the  
author’s numbering format, reference the section or paragraph from which I extract  
my summary of the text. However, with a view to efficiency of expression, I will not  
be more precisely identifying what is a quote, summary or a combination thereof. I  
take this liberty with a view to being concise and readable.  
[33]  
This section of my decision is background, albeit important background,  
to the more detailed discussion of the law respecting interpretation of standard form  
contracts and contracts of insurance that follows.  
[34]  
As the learned author states at 2.1.1, “Words and their context,  
therefore, are the primary theme of the law of interpretation of contracts, and set the  
parameters for the interpretive exercise.” He quotes Montréal (City) v 2952-1366  
Québec Inc., 2005 SCC 62 at para 15, [2005] 3 SCR 141, where the Court, in a clear  
encapsulation of principle, said: “Any act of communication presupposes two distinct  
but inseparable components: text and context.”  
[35]  
The fundamental precepts of contractual interpretation are set out and  
expanded upon by Hall in Chapter 2, with extensive foundation in the authorities he  
cites. Those fundamental precepts which I find significant to my analysis in this case  
include the following:  
- Mosten 17 -  
2.2 A contract is to be construed as a whole with meaning given to  
all of its provisions, not just consideration of the specific words  
in dispute. The words of one provision must not be read in  
isolation but should be considered in harmony with the rest of the  
contract and in light of its purposes and commercial context.  
2.3.1 Contractual interpretation is all about giving meaning to words in  
their proper context, including the surrounding circumstances in  
which a contract has arisen usually referred to as the “factual  
matrix.  
2.3.2 The factual matrix constitutes an essential element of contractual  
interpretation in all cases, even when there is no linguistic  
ambiguity in the text of the document.  
2.3.4 and 2.3.5 The factual matrix does not include evidence of a  
contracting party’s intentions. It consists only of objective facts  
known to the parties at or before the date of contracting.  
2.3.6 The factual matrix evidence must not overwhelm the words of a  
contract and can only be used to clarify the parties’ intentions as  
expressed in the written agreement. It can not be used to  
contradict that intention, to create an ambiguity or have the effect  
of making a new agreement. In cases of conflict, the words will  
prevail over the context.  
2.5 Interpretation of the words of a contract is an objective exercise  
that seeks to discover the parties’ intention at the time the  
contract was made, and the objective approach applies to both the  
- Mosten 18 -  
words of the contract and their context. Thus, meaning must be  
assessed from the perspective of what a reasonable person would  
have objectively understood from the words of the document  
read as a whole and from the factual matrix.  
2.6 Commercial contracts must be interpreted in accordance with  
sound commercial principles and good business sense. This  
commercial efficacy principle is grounded in the intentions of the  
parties and assessed objectively referencing the language of the  
contract as a whole and the factual matrix. The purpose of the  
commercial efficacy principle is not to protect business people  
from absurd results but, rather, is used to inform what the parties  
likely intended. Commercial absurdities are to be avoided.  
2.8 A contract is to be interpreted as of the date it was made.  
3.2 In the event the court is unable to resolve a contradiction or  
ambiguity in the terms of a contract, the language of the contract  
will be construed against its author in accordance with the contra  
proferentem rule. This rule is only applied as a last resort.  
2.  
Principles of interpretation specific to insurance contracts  
[36]  
Once again I turn to Hall’s text for statements of the principles of  
interpretation specific to insurance contracts. Commencing at page 241, he lists nine  
special principles in the following words:  
The interpretation of insurance policies involves a somewhat unique  
blend of the general principles of interpretation applicable to all  
contracts and special principles applicable in the insurance context.  
As a result, the Supreme Court of Canada has described insurance  
- Mosten 19 -  
policies as forming “a special category of contracts”:  
As with all contracts, the terms of the policy must be examined, in light  
of the surrounding circumstances, in order to determine the intent of the  
parties and the scope of their understanding. Nevertheless, through its  
long history, insurance law has given rise to a number of principles  
specific to the interpretation of insurance policies.  
Thus the principles of interpretation which apply to insurance  
contracts are the same as those generally applicable to commercial  
contracts, but at the same time nine special principles also govern the  
interpretative process:  
1. The court should look at the words of the contract to determine if  
there is ambiguity.  
2. The court should ascertain the intention of the parties concerning  
specific provisions by reference to the language of the entire  
contract.  
3. The court should construe ambiguities found in the insurance  
contract in favour of the insured (the contra proferentem rule).  
4. The court should limit the construction in favour of the insured  
by reasonableness.  
5. Coverage provisions should be construed broadly and exclusion  
clauses should be construed narrowly.  
6. It is desirable, at least where a policy is ambiguous, to give effect  
to the reasonable expectations of the parties.  
7. Policies of insurance should be interpreted in a manner  
consistent with the general economic purpose of insurance.  
8. In general, an insurance policy is interpreted such that only  
fortuitous or contingent losses are covered (the fortuity  
principle).  
9. There is an increased willingness to rely on precedent, including  
in some cases American authorities, for insurance contracts than  
there is for other types of contracts.  
3.  
The law respecting interpretation of Standard Form Contracts  
[37]  
Within this topic lies fundamental disagreement between Ituna and  
Industrial Alliance, as well as between Mosten and Atwater and their respective  
- Mosten 20 -  
insurers in the proceedings among them.  
[38]  
At page 222 of his text, Hall has a four-paragraph discussion of the law  
relating to the interpretation of “contracts of adhesion”, or what are described herein  
as standard form contracts. Hall’s text was published in 2016 following the Sattva  
decision, which was in large part responsible for Hall issuing his third edition of this  
text. However, the text was published before two important decisions of the Supreme  
Court that are significant here. These two significant decisions of the Supreme Court  
dealing with the interpretation of standard form contracts are:  
Ledcor Construction Ltd. v Northbridge Indemnity Insurance Co.,  
2016 SCC 37, [2016] 2 SCR 23 [Ledcor]; and  
Sabean v Portage La Prairie Mutual Insurance Co., 2017 SCC 7,  
[2017] 1 SCR 121 [Sabean].  
(a)  
Sattva  
[39]  
Sattva had its origins in a judicial review of an arbitration award, made  
under the Arbitration Act, RSBC 1996, c 55 [AA], interpreting a negotiated  
commercial agreement. The Supreme Court stated at paragraph 1 of its decision that  
the first issue in the appeal was:  
[1]  
When is contractual interpretation to be treated as a question  
of mixed fact and law and when should it be treated as a question of  
law? …  
If treated as a question of mixed fact and law, the applicable standard of review would  
be reasonableness; if treated as a question of law, the standard of review would be  
correctness. The Court found the appropriate standard of review to be applied to  
commercial arbitration decisions under the AA to be reasonableness.  
- Mosten 21 -  
[40]  
It is important to note that the contract in question in Sattva was a form  
of negotiated agreement and not a standard form agreement. In that context,  
Rothstein J., writing for the Court, said the following at paragraphs 47, 48 and 55:  
[47]  
Regarding the first development, the interpretation of  
contracts has evolved towards a practical, common-sense approach  
not dominated by technical rules of construction. The overriding  
concern is to determine “the intent of the parties and the scope of  
their understanding” (Jesuit Fathers of Upper Canada v. Guardian  
Insurance Co. of Canada, 2006 SCC 21, [2006] 1 S.C.R. 744, at  
para. 27, per LeBel J.; see also Tercon Contractors 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, consistent with the  
surrounding circumstances known to the parties at the time of  
formation of the contract. Consideration of the surrounding  
circumstances recognizes that ascertaining contractual intention can  
be difficult when looking at words on their own, because words  
alone do 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 certainly right  
that the court should know the commercial purpose of the contract and  
this in turn presupposes knowledge of the genesis of the transaction, the  
background, the context, the market in which the parties are operating.  
(Reardon Smith Line [[1976] 3 All ER 570], 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  
nature of the relationship created by the agreement (see Moore  
Realty Inc. v. Manitoba Motor League, 2003 MBCA 71, 173 Man. R.  
(2d) 300, at para. 15, per Hamilton J.A.; see also Hall, at p. 22; and  
McCamus, at pp. 749-50). As stated by Lord Hoffmann in Investors  
Compensation Scheme 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 its words.  
The meaning of words is a matter of dictionaries and grammars; the  
meaning of the document is what the parties using those words against  
the relevant background would reasonably have been understood to  
mean. [p. 115]  
- Mosten 22 -  
[55]  
Although that caution was expressed in the context of a  
negligence case, it applies, in my opinion, to contractual  
interpretation as well. As mentioned above, the goal of contractual  
interpretation, to ascertain the objective intentions of the parties, is  
inherently fact specific. The close relationship between the selection  
and application of principles of contractual interpretation and the  
construction ultimately given to the instrument means that the  
circumstances in which a question of law can be extricated from the  
interpretation process will be rare. In the absence of a legal error of  
the type described above, no appeal lies under the AA from an  
arbitrator’s interpretation of a contract.  
[41]  
Following the above, Rothstein J. undertook a discussion of “The Role  
and Nature of the ‘Surrounding Circumstances’” wherein he said the following:  
[57]  
While the surrounding circumstances will be considered in  
interpreting the terms of a contract, they must never be allowed to  
overwhelm the words of that agreement (Hayes Forest Services  
[2008 BCCA 31, 289 DLR (4th) 230], at para. 14; and Hall, at p. 30).  
The goal of examining such evidence is to deepen a  
decision-maker’s understanding of the mutual and objective  
intentions of the parties as expressed in the words of the contract.  
The interpretation of a written contractual provision must always be  
grounded in the text and read in light of the entire contract (Hall, at  
pp. 15 and 30-32). While the surrounding circumstances are relied  
upon in the interpretive process, courts cannot use them to deviate  
from the text such that the court effectively creates a new agreement  
(Glaswegian Enterprises Inc. v. B.C. Tel Mobility Cellular Inc.  
(1997), 101 B.C.A.C. 62).  
[58]  
The nature of the evidence that can be relied upon under the  
rubric of “surrounding circumstances” will necessarily vary from  
case to case. It does, however, have its limits. It should consist only  
of objective evidence of the background facts at the time of the  
execution of the contract (King [2011 MBCA 80, 270 Man R (2d)  
63], at paras. 66 and 70), that is, knowledge that was or reasonably  
ought to have been within the knowledge of both parties at or before  
the date of contracting. Subject to these requirements and the parol  
evidence rule discussed below, this includes, in the words of Lord  
Hoffmann, “absolutely anything which would have affected the way  
in which the language of the document would have been understood  
by a reasonable man” (Investors Compensation Scheme, at p. 114).  
Whether something was or reasonably ought to have been within the  
common knowledge of the parties at the time of execution of the  
contract is a question of fact.  
- Mosten 23 -  
[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] 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] 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.  
[42]  
This statement of the law by Rothstein J. falls within the scope of what  
Hall discusses in Chapter 2 of his text under the descriptor “Fundamental Precepts of  
Contractual Interpretation. Rothstein J. was specifically addressing the role of  
surrounding circumstances in contractual interpretation generally and the nature of the  
evidence that can be considered when interpreting a negotiated contract.  
Considerations specific to insurance contracts and standard form contracts were not  
addressed.  
(b)  
Ledcor  
[43]  
In September 2016, the Supreme Court handed down its decision in  
Ledcor. Writing for the Court, other than Cromwell J. who wrote a concurring  
decision, Wagner J. (as he then was) said at paragraph 20:  
- Mosten 24 -  
[20]  
These appeals present an opportunity to clarify how  
Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2  
S.C.R. 633, applies to the interpretation of standard form contracts,  
sometimes called contracts of adhesion.  
[44]  
The standard form contract in question was a builders’ risk insurance  
policy which had been issued to the owner and general contractor of a building under  
construction and provided coverage to them and to all contractors and subcontractors  
working on the project for all builders’ risks, except specified excluded risks.  
Builders’ risk policies were widely used in the construction industry, and there was an  
understanding by industry participants of the purpose of such policies. The contract  
had an exclusion clause that denied coverage for the “cost of making good faulty  
workmanship” but, as an exception to that exclusion, covered “physical damage” that  
“results” from the faulty workmanship. The interpretation of this exclusion clause was  
the specific issue before the Court.  
[45]  
In summarizing the Courts decision, Wagner J. said at paragraphs 4  
and 5 the following:  
[4]  
In my opinion, the appropriate standard of review in  
this case is correctness. Where, like here, the 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 particular parties to assist the interpretation  
process, this interpretation is better characterized as a question of law  
subject to correctness review.  
[5]  
Regarding the appropriate interpretation of the faulty  
workmanship exclusion in all builders’ risk policies, I am of the view  
that the exclusion clause serves to exclude from coverage only the  
cost of redoing the faulty work. This interpretation is dictated by the  
general rules of contractual interpretation. It best represents the  
parties’ reasonable expectations, as informed by the purpose of  
builders’ risk policies, aligns with commercial reality, and is  
consistent with the jurisprudence on the matter. In this case, the cost  
of redoing the faulty work is that of recleaning the windows.  
Therefore, I would allow the appeals and hold that the windows’  
replacement cost is covered under the insurance policy.  
- Mosten 25 -  
[46]  
In respect of his conclusion that the correctness standard of review  
should apply, Wagner J. said the following:  
[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.  
[47]  
Wagner J. explained why the reasons the Court gave in Sattva for  
concluding the contractual interpretation there under consideration was a question of  
mixed fact and law subject to deferential review on appeal were less compelling in the  
context of standard form contracts. In so doing, Wagner J. said the following under  
the heading “Factual Matrix”:  
[28]  
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 [2015 ONCA 842, 127 OR (3d) 663], at  
para. 33. Standard form contracts are particularly common in the  
insurance industry, as Professor Barbara Billingsley observed in  
General Principles of Canadian Insurance Law (2nd ed. 2014), at p.  
56:  
As part of its business considerations and in advance of meeting with  
any particular client, an insurance company decides the terms and  
conditions under which it is willing to provide insurance coverage for  
certain common types of risk. This means that, in most situations, an  
insurance company does not negotiate the detailed terms of insurance  
coverage with individual customers. Instead, before entering into any  
insurance agreements, an insurer typically drafts a series of  
pre-fabricated contracts outlining the terms upon which particular kinds  
of coverage will be provided. These contracts are known as “standard  
form policies”. The insurer then provides the appropriate standard form  
policy to clients purchasing insurance coverage.  
[29]  
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.  
- Mosten 26 -  
[30]  
My colleague Justice Cromwell accepts that, for  
standard form contracts, there are usually no relevant surrounding  
circumstances relating to negotiation (para. 106). However, he  
observes that other elements of the surrounding circumstances such  
as the purpose of the contract, the nature of the relationship it  
creates, and the market or industry in which it operates have a role  
in the interpretation process.  
[31]  
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 specificˮ: Sattva, at para. 55. Rather,  
they will usually be the same for everyone who may be a party to a  
particular standard form contract. This underscores the need for  
standard form contracts to be interpreted consistently, a point to  
which I will return below.  
[32]  
In sum, for standard form contracts, the surrounding  
circumstances generally play less of a role in the interpretation  
process, and where they are relevant, they tend not to be specific to  
the particular parties. Accordingly, the first reason given in Sattva  
for concluding that contractual interpretation is a question of mixed  
fact and law the importance of the factual matrix carries less  
weight in cases involving standard form contracts.  
[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 [[1997] 1 SCR 748], 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).  
[48]  
Having said the above, Wagner J. turned to interpretation of the subject  
exclusion clause and, under the heading Rules Governing the Interpretation of the  
Policy”, said the following:  
- Mosten 27 -  
[49]  
The parties agree that the governing principles of  
interpretation applicable to insurance policies are those summarized  
by Rothstein J. in Progressive Homes [2010 SCC 33, [2010] 2 SCR  
245]. The primary interpretive principle is that where the language of  
the insurance policy is unambiguous, effect should be given to that  
clear language, reading the contract as a whole: para. 22, citing  
Non-Marine Underwriters, Lloyd’s of London v. Scalera, 2000 SCC  
24, [2000] 1 S.C.R. 551, at para. 71.  
[50]  
Where, however, the policy’s language is  
ambiguous, general rules of contract construction must be employed  
to resolve that ambiguity. These rules include that the interpretation  
should be consistent with the reasonable expectations of the parties,  
as long as that interpretation is supported by the language of the  
policy; it should not give rise to results that are unrealistic or that the  
parties would not have contemplated in the commercial atmosphere  
in which the insurance policy was contracted, and it should be  
consistent with the interpretations of similar insurance policies. See  
Progressive Homes, at para. 23, citing Scalera, at para. 71; Gibbens  
[2009 SCC 59, [2009] 3 SCR 605], at paras. 26-27; and  
Consolidated-Bathurst Export Ltd. v. Mutual Boiler and Machinery  
Insurance Co., [1980] 1 S.C.R. 888, at pp. 900-902.  
[49]  
Discussing the reasonable expectation of the parties, Wagner J. said:  
[65]  
Parties’ reasonable expectations with respect to the  
meaning of a contractual provision can often be gleaned from the  
circumstances surrounding the contract’s formation: Sattva, at paras.  
46-47. However, as discussed above, there is no factual matrix here  
that would assist in ascertaining the parties’ understanding of and  
intent regarding the Exclusion Clause. The Policy is a standard form  
contract. And, as the Court of Appeal noted at para. 15 of its reasons,  
there is no evidence that the parties gave any thought to the cleaning  
of the windows, the relationship of faulty workmanship to resulting  
damage, or anything else that would help in determining their  
reasonable expectations.  
[66]  
Therefore, in my view, the purpose behind builders’  
risk policies is crucial in determining the parties’ reasonable  
expectations as to the meaning of the Exclusion Clause. In a nutshell,  
the purpose of these polices is to provide broad coverage for  
construction projects, which are singularly susceptible to accidents  
and errors. This broad coverage in exchange for relatively high  
premiums provides certainty, stability, and peace of mind. It  
ensures construction projects do not grind to a halt because of  
disputes and potential litigation about liability for replacement or  
repair amongst the various contractors involved. In my view, the  
purpose of broad coverage in the construction context is furthered by  
- Mosten 28 -  
an interpretation of the Exclusion Clause that excludes from  
coverage only the cost of redoing the faulty work itself in this case,  
the cost of recleaning the windows.  
[50]  
Then, under the heading “No Unrealistic Results”, Wagner J. spoke to  
the commercial efficacy precept in paragraphs 78 and 79 as follows:  
[78]  
In discussing the interpretation of insurance policies in  
Consolidated-Bathurst [[1980] 1 SCR 888], at pp. 901-2, Estey J.  
stressed the need to avoid interpretations that would bring about  
unrealistic results or results that the parties would not have  
contemplated in the commercial atmosphere in which they sold or  
purchased the policy. The interpretation should respect the intentions  
of the parties and “their objective in entering into the commercial  
transaction in the first place”, as well as “promot[e] a sensible  
commercial result” (p. 901). See also Guarantee Co. of North  
America v. Gordon Capital Corp., [1999] 3 S.C.R. 423, at para. 62,  
where this Court restated the importance of commercial reality,  
albeit in a different context. Interpreting the Exclusion Clause to  
preclude from coverage only the cost of redoing the faulty work  
aligns with commercial reality and leads to realistic and sensible  
results, given both the purpose underlying builders’ risk policies and  
their spreading of risk on construction projects.  
[79]  
As already discussed above, the interpretation  
advanced by the Insureds in these appeals best fulfills the broad  
coverage objective underlying builders’ risk policies. These policies  
are commonplace on construction projects, where multiple  
contractors work side by side and where damage to their work or the  
project as a whole commonly arises from faults or defects in  
workmanship, materials or design. In this commercial reality, a  
broad scope of coverage creates certainty and economies for both  
insureds and insurers. In my opinion, it is commercially sensible in  
this context for only the cost of redoing a contractor’s faulty work to  
be excluded under the faulty workmanship exclusion. Such an  
interpretation strikes the right balance between the two undesirable  
extremes described by Estey J. in Consolidated-Bathurst, at pp.  
901-2: “... the courts should be loath to support a construction which  
would either enable the insurer to pocket the premium without risk or  
the insured to achieve a recovery which could neither be sensibly  
sought nor anticipated at the time of the contract”. Under the Policy,  
the Insurers did not undertake to cover the “cost of making good  
faulty workmanship”, but they did promise to cover “physical  
damage [that] results” from that “faulty workmanship”. It can hardly  
be said that recovery for the damages to the Tower’s windows in the  
circumstances of this case could not have been sensibly sought or  
anticipated when the Policy was purchased.  
- Mosten 29 -  
[51]  
In his concurring reasons, Cromwell J. disagreed with the view of  
Wagner J. that the first rationale underlying the Sattva decision did not apply to cases  
interpreting standard form contracts. He outlined this first rationale in paragraph 103  
of the decision as follows:  
[103] Sattva explained that this was an appropriate  
development for two related reasons. First, contractual interpretation  
is not simply a question of ascribing an abstract legal meaning to the  
words, but rather of understanding those words in their full context.  
Second, this process of interpretation should generally be considered  
to be the application of a legal standard to the facts; in other words,  
contractual interpretation is generally a mixed question of law and  
fact which, under the Court’s standard of review jurisprudence, is  
generally reviewed for palpable and overriding error. Both of these  
related reasons, as we shall see, apply to interpreting all types of  
contracts.  
[52]  
With this background, Cromwell J. said the following:  
[106] I accept, of course, that standard form contracts generally do  
not have relevant surrounding circumstances relating to their  
negotiation because there was in no real sense any negotiation of  
their terms. However, standard form contracts, like all contracts,  
have many other surrounding circumstances: they have a purpose,  
they create a relationship of a particular nature and they frequently  
operate within a particular market or industry. These factors are all  
part of the context of the surrounding circumstances that must be  
taken into account in interpreting the text of the contract. As Lord  
Wilberforce put it in a passage cited with approval in Sattva, “In a  
commercial contract it is certainly right that the court should know  
the commercial purpose of the contract and this in turn presupposes  
knowledge of the genesis of the transaction, the background, the  
context, the market in which the parties are operating”: Reardon  
Smith Line Ltd. v. Hansen-Tangen, [1976] 3 All E.R. 570 (H.L.), at  
p. 574, quoted in Sattva, at para. 47. This point is further developed  
in a short passage from Investors Compensation Scheme Ltd. v. West  
Bromwich Building Society, [1998] 1 All E.R. 98 (H.L.), also quoted  
by the Court in Sattva, at para. 48:  
The meaning which a document ... would convey to a reasonable man  
is not the same thing as the meaning of its words. The meaning of  
words is a matter of dictionaries and grammars; the meaning of the  
document is what the parties using those words against the relevant  
background would reasonably have been understood to mean. [p. 115]  
- Mosten 30 -  
[107] All contracts, whether standard form or not, have important  
contextual elements elements of their surrounding circumstances –  
that are generally considered in applying the contractual language to  
a specific set of occurrences.  
[108] Unlike my colleague, I do not read this aspect of Sattva as  
holding that contractual interpretation is not generally a pure  
question of law simply because it involves assessing a “factual  
matrix” relating to negotiation. Rather, as I have discussed, Sattva  
sees contractual interpretation as not being a pure question of law  
because it involves understanding the words used in light of a  
number of contextual factors beyond negotiation, including the  
purpose of the agreement, the nature of the relationship, the market  
in which the parties are operating, and so forth. While the words  
have a consistent meaning, how they apply to the myriad of  
situations that may arise will most often turn on these sorts of  
contextual factors. My colleague’s interpretative analysis of the  
standard form contract before us in this case shows that this is so.  
That analysis relies on the nature of the particular work alleged to be  
faulty; the nature and cause of the particular damage in issue; the  
purpose of the contract; the market in which it operates (i.e. the  
construction industry); the parties’ reasonable expectations; and  
commercial reality.  
[109] The importance of taking these contextual matters into  
account is the first reason the Court relied on in Sattva to explain  
why contractual interpretation is generally not a pure question of law  
and applies to standard form contracts as it does to others. While  
negotiating history will generally not be relevant to such contracts,  
many other contextual matters are.  
[110] Turning to the second related reason given in Sattva, it too  
applies to the interpretation of standard form contracts. That second  
reason was that “the historical approach to contractual interpretation  
does not fit well with the definition of a pure question of law  
identified in Housen and [Canada (Director of Investigation and  
Research) v. Southam Inc., [1997] 1 S.C.R. 748]”: para. 49. Rather,  
contractual interpretation should be understood as generally giving  
rise to mixed questions of law and fact. As Rothstein J. wrote for the  
Court, “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”: para. 50. In short, Sattva  
brought appellate review of contractual interpretation into the  
general framework for appellate review in civil cases set out in the  
Court’s standard of review jurisprudence.  
[111] I see no reason to think that the interpretation of certain  
types of contracts should be excluded from these general principles  
that apply to appellate review in all civil cases. A number of  
- Mosten 31 -  
appellate courts have reached the same conclusion: Industrial  
Alliance Insurance and Financial Services Inc. v. Brine, 2015 NSCA  
104, 392 D.L.R. (4th) 575, at paras. 40-41; Ontario Society for the  
Prevention of Cruelty to Animals v. Sovereign General Insurance  
Co., 2015 ONCA 702, 127 O.R. (3d) 581, at paras. 34-36; Acciona  
Infrastructure Canada Inc. v. Allianz Global Risks US Insurance  
Co., 2015 BCCA 347, 77 B.C.L.R. (5th) 223, at paras. 34-35; GCAN  
Insurance Co. v. Univar Canada Ltd., 2016 QCCA 500, at paras.  
37-42 ().  
(c)  
Sabean  
[53]  
In January 2017, some four months after delivering its decision in  
Ledcor, the Supreme Court delivered its decision in Sabean. The case involved the  
interpretation of a standard form excess-insurance policy endorsement which  
indemnified insureds against any shortfall in the payment of a judgment for damages  
by an underinsured tortfeasor. Part of the interpretive exercise involved interpreting  
the phrase “any policy of insurance providing disability benefits” and whether the  
Canada Pension Plan [CPP] was such a policy of insurance.  
[54]  
In a short 44-paragraph decision, the Supreme Court held that the CPP  
was not a policy of insurance. In paragraphs 12 and 13, the Court says the following  
in relation to its decision in Ledcor:  
[12]  
In Ledcor Construction Ltd. v. Northbridge Indemnity  
Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23, this Court  
confirmed the principles of contract interpretation applicable to  
standard form insurance contracts. The overriding principle is that  
where the language of the disputed clause is unambiguous, reading  
the contract as a whole, effect should be given to that clear language:  
Ledcor, at para. 49; Progressive Homes Ltd. v. Lombard General  
Insurance Co. of Canada, 2010 SCC 33, [2010] 2 S.C.R. 245, at  
para. 22; Non-Marine Underwriters, Lloyd’s of London v. Scalera,  
2000 SCC 24, [2000] 1 S.C.R. 551, at para. 71. Only where the  
disputed language in the policy is found to be ambiguous, should  
general rules of contract construction be employed to resolve that  
ambiguity: Ledcor, at para. 50. Finally, if these general rules of  
construction fail to resolve the ambiguity, courts will construe the  
- Mosten 32 -  
contract contra proferentem, and interpret coverage provisions  
broadly and exclusion clauses narrowly: Ledcor, at para. 51.  
[13]  
At the first step of the analysis for standard form contracts of  
insurance, the words used must be given their ordinary meaning, “as  
they would be understood by the average person applying for  
insurance, and not as they might be perceived by persons versed in  
the niceties of insurance law”: Co-operators Life Insurance Co. v.  
Gibbens, 2009 SCC 59, [2009] 3 S.C.R. 605, at para. 21; see also  
Ledcor, at para. 27.  
[55]  
At paragraphs 28, 29 and 35, the Court also said the following:  
[28]  
In my view, the ordinary meaning of a “policy of insurance”  
is limited to private contracts of insurance between an insured and a  
private insurance agency. An average person would not consider  
benefits provided under a mandatory statutory scheme to be a private  
insurance contract.  
[29]  
The insurer submits and the Court of Appeal accepted that  
the meaning of “policy of insurance” under the Endorsement must be  
understood in the context of this Court’s decision in Gill [[1973] 3  
SCR 654]. Implicit in the approach urged by the insurer is the  
suggestion that this Court’s decision in Gill itself supports an  
alternative reasonable interpretation of the disputed words at the first  
stage of the Ledcor analysis. As I shall explain, I cannot accept this  
as a reasonable interpretation of this insurance policy. Gill does not  
interpret or inform the ordinary words of the Endorsement. Nor  
would the average person applying for this insurance contemplate the  
distinct tort and statutory context in Gill in understanding the words  
of the Endorsement. The insurer relies on its specialized knowledge  
of the jurisprudence to advance an interpretation that goes beyond  
the clear words of the policy.  
[35]  
First, it is wrong to rely on Gill to illustrate that insurance  
companies amended their policies in light of that judgment and thus  
intended to include CPP benefits. It cannot be assumed that the  
average person who applies to purchase this excess insurance policy  
would imbue the words in the Endorsement with knowledge of how  
they were interpreted by the courts for the purposes of provincial  
insurance legislation and the collateral benefits rule in tort. In this  
context, the purchaser is not someone with the specialized  
knowledge of related jurisprudence or of the objectives of the  
insurance industry. Thus, the history and intention of the insurance  
industry in drafting the Endorsement following Gill do not assist in  
the interpretation of this contract.  
- Mosten 33 -  
The Contract Language to be Interpreted  
[56] While the contract as a whole is to be interpreted, the focus of the  
submissions and the interpretational issues arise from certain portions of the contract.  
Attached as Appendix “A” to this decision are extracts from the contract. Included in  
Appendix Aare significant portions of the contract referenced by counsel in their  
submissions. However, the provisions that will figure most prominently in my  
interpretation of the contract are quoted below:  
Architect Minimum Premium  
The Architect Minimum Premium is the sum of the Annual  
Minimum Premium(s) for the Architect coverage(s) plus twelve  
times the monthly administration fee shown in the Schedule. Annual  
Minimum Premium is a factor of the Cost of Insurance rate  
multiplied by the Sum Insured. The Architect Minimum Premium  
increases if the Sum Insured is increased.  
Total Annual Minimum Premium  
The Total Annual Minimum Premium is shown in the Schedule. The  
Total Annual Minimum Premium changes if a policy change is made  
that affects the Monthly Deduction, such as a request to increase or  
decrease the Sum Insured. The cumulative Total Annual Minimum  
Premium is the sum of the Total Annual Minimum Premiums for  
each year (including fractions) that has elapsed since the Policy Date.  
Investment Account  
Investment Accounts are savings pools within Our general funds to  
which Your premiums are directed and from which charges are  
deducted. They provide different levels of risk, liquidity and  
expected rates of return. While Your policy is in force, We will offer  
various Investment Accounts which may change from time to time.  
We reserve the right to discontinue at any time any Investment  
Account except the Guaranteed Interest Accounts which We  
guarantee will always be available to You. When an Investment  
Account is no longer being offered, We reserve the right to transfer  
the Account Value to another Investment Account then being offered  
by Us. There will be no charge when We make such a transfer. Any  
such transfer will only take effect after We have advised You that a  
transfer is occurring.  
- Mosten 34 -  
Exempt Status  
Exempt Status means this policy is exempt from accrual taxation  
under the provisions of the Income Tax Act of Canada in effect on  
the Policy Date. We guarantee to take the required action to maintain  
the Exempt Status. An exempt test is done each Policy Anniversary.  
Should the definition of an exempt policy change, We will  
administer the next exempt test under the terms of the amendment.  
When an adjustment is required to maintain the Exempt Status of this  
policy, We will take action in the following order:  
1. We will increase the amount of life insurance coverage by up to  
eight percent each year, as permitted under the current Income  
Tax Act. Any such increase is referred to in this contract as  
Additional Sum Insured. This option only applies if the Insured  
is living when the exempt test is done. The Additional Sum  
Insured is effective for one year and the amount will be  
recalculated on the next Policy Anniversary.  
2. We will transfer the excess funds to the Carrier Fund, as  
described below.  
Carrier Fund  
The Carrier Fund is a special account that holds funds in excess of  
the maximum allowable tax exempt value calculated by the annual  
exempt test. During the first Policy Year, We will also credit to the  
Carrier Fund any premiums that exceed the maximum premium  
determined by Us on the Policy Date. You may base the Carrier  
Fund on any one of the available Investment Accounts. The Money  
Market Account will be the default basis. You may change the basis  
for the Carrier Fund up to twice each year at no charge. However, a  
Market Value Adjustment may apply if you change the Carrier Fund  
from a Guaranteed Interest Account basis.  
The Carrier Fund investment return is as described in the  
corresponding Investment Account section, subject to the same  
guarantees. However, the Carrier Fund will not be entitled to any  
Investment Bonus. Account Deductions will not be made from the  
Carrier Fund. The Carrier Fund is not included in the calculation of  
the Fund Value. The Carrier Fund will be paid to You or Your estate  
when the contract terminates.  
The investment income of the Carrier Fund is subject to annual  
accrual taxation.  
Cash Withdrawals may be made from the Carrier Fund, subject to  
Market Value Adjustment if the Carrier Fund has a Guaranteed  
Interest Account basis. Withdrawal Charges do not apply.  
Each year, the exempt test is redone as described in the Exempt  
Status provision. Transfers are made from or to the Carrier Fund as  
required to keep the maximum amount in the tax exempt Investment  
Accounts. Transfers to the Carrier Fund will be subtracted from the  
Investment Accounts in proportion to the Account Values. Transfers  
- Mosten 35 -  
from the Carrier Fund will be in proportion to the Premium  
Allocation. Transfer fees will not apply. Market Value Adjustment  
may apply to transfers involving a Guaranteed Interest Account.  
Payment of Premiums  
The initial planned premium, as shown in the Schedule, is due on the  
Policy Date and must be paid before any coverage becomes  
effective. You may then pay premiums annually, or by a monthly  
automatic payment system. You may make additional premium  
payments at any time while this policy is in force. We will not refuse  
any premium payment required to prevent the policy from  
terminating as described in the Lapse provision.  
All premiums after the first will be payable on premium due dates  
determined from the Policy Date and the premium frequency.  
Premiums are payable at Our head office or any Canadian chartered  
bank. You must advise Us in writing of a change in address for  
premium notification.  
[These provisions are not quoted in the order they appear in the  
contract.]  
The Parties’ Positions on the Proper Interpretation  
[57] The position of each of the parties is that the contract is unambiguous  
and should be interpreted as they propose. Each says that if the contract is found to be  
ambiguous, the relevant and properly admissible evidence of the surrounding  
circumstance or factual matrix leads to the interpretation they propose. Both Mosten  
and Manulife rely on Sattva, Ledcor and Sabean and, for their respective reasons, say  
these decisions support the interpretation they propose.  
[58]  
Mosten says the bulk of the affidavit evidence filed by Manulife is  
inadmissible and irrelevant evidence, and has applied to strike that evidence. Manulife  
says its affidavit evidence is both admissible and relevant; but if struck by the court,  
then on the same rationale advanced by Mosten, the reply and some original affidavit  
evidence of Mosten should be similarly struck. Manulife has brought its own  
application to strike affidavit evidence of Mosten. Before considering these issues,  
- Mosten 36 -  
I will deal with what has been designated the Stage 1 interpretive exercise.  
1.  
Mostens position on the interpretive principles to apply  
[59]  
Mosten says the proper interpretive approach is set out in Ledcor, and in  
particular in paragraphs 49 and 50 quoted at paragraph 48 above. Mosten points out  
this approach was again confirmed at paragraph 12 of Sabean in 2017.  
[60]  
Mosten says that at Stage 1 of the interpretive process of standard form  
contracts of insurance, the focus is on the language of the contract and the ordinary  
meaning of the words as understood by the average person buying insurance. Sabean  
directs that:  
[13]  
At the first step of the analysis for standard form contracts of  
insurance, the words used must be given their ordinary meaning, “as  
they would be understood by the average person applying for  
insurance, and not as they might be perceived by persons versed in  
the niceties of insurance law”: Co-operators Life Insurance Co. v.  
Gibbens, 2009 SCC 59, [2009] 3 S.C.R. 605, at para. 21; see also  
Ledcor, at para. 27.  
[61]  
Mosten argues you do not need to consider anything but the clear  
language of the contract. They place particular reliance on the statement, “You may  
make additional premium payments at any time while this policy is in force”, found in  
the section headed Payment of Premiums. They argue that everything the insured pays  
is premiums and, thus, the unambiguous meaning of this language is that the insured  
can pay additional payments at any time and that premiums in excess of the exempt  
policy rules are invested in the Carrier Fund. They say this meaning is consistent with  
contract as a whole, which in other provisions provides:  
(i)  
minimum premiums only and does not limit or state maximum  
premiums;  
- Mosten 37 -  
(ii) premiums can be invested;  
(iii) premiums can be withdrawn; and  
(iv) premiums paid can be invested in the Carrier Fund.  
Thus, they say the ordinary insured would understand the contract to provide life  
insurance, investment that is exempt from an annual accrual taxation and, in the  
Carrier Account, investment opportunities subject to annual accrual taxation.  
[62]  
They say that if ambiguity is found to exist, then the applicable  
principles of general contract interpretation to apply are that:  
(a)  
(b)  
(c)  
the interpretation should be consistent with the reasonable  
expectations of the parties that are supported by the language of  
the contract;  
the interpretation should not give results the parties would not  
have contemplated in the commercial atmosphere in which the  
contract was made; and  
the interpretation should be consistent with interpretations of  
similar contracts.  
If these general rules of construction fail to resolve a genuine ambiguity, then the  
courts will construe the contract contra proferentem against the insurer.  
2.  
Manulifes position on the interpretive principles to apply  
[63]  
Manulife agrees that the starting point is the language of the contract but  
- Mosten 38 -  
says, citing Sattva, para 47, that the interpretation of contracts has evolved towards a  
practical, common sense approach not dominated by technical rules of construction,  
with the overriding concern being to determine “the intent of the parties and the scope  
of their understanding” and this approach applies to interpretation of standard form  
contracts at Stage 1. They point to Sattva’s directions in paragraphs 47 and 48, quoted  
above at paragraph 40 and take the position that the text cannot be interpreted without  
regard to the context.  
[64]  
Manulife says this concept is at the core of modern contractual  
interpretation and Ledcor and Sabean need to be read in light of this fundamental  
principle of contractual interpretation. While acknowledging that the surrounding  
circumstances to be considered should consist only of objective evidence of the  
background facts at the time of the execution of the contract, it says failure to look to  
the surrounding circumstances known to the parties at the time of formation of the  
contract would result in interpreting the words of the contract out of context. Citing  
Sattva, at para 57, it says the goal of examining the surrounding circumstances is to  
deepen the decision-maker’s understanding of the mutual and objective intentions of  
the parties as expressed in the words of the contract.  
[65]  
Manulife says that when the words of the policies are read in the context  
of their surrounding circumstances, it is clear that the ordinary person would not have  
understood the policies to provide the unlimited investment rights Mosten now  
claims. It says the meaning of “premiums” in a life insurance contract is well known  
and understood and does not include payments for investments not connected with the  
life insurance purpose. Should the contract be found to be ambiguous, they say the  
factual evidence they have presented is admissible to resolve that ambiguity and  
clearly demonstrates what the intent of the parties was.  
- Mosten 39 -  
3.  
The partiesdisagreement on the applicable interpretive principles  
[66]  
The parties agree with the proposition that the interpretive process starts  
by reference to the language of the contract. They diverge with respect to whether  
surrounding circumstance can and should be considered at Stage 1 of the  
interpretation process and, if considered, what is the proper scope of those  
surrounding circumstances. Further, should ambiguity be found, they disagree on the  
proper scope of such surrounding circumstances to consider within a Stage 2  
interpretation.  
[67]  
Mosten views the decisions in Progressive Homes Ltd. v Lombard  
General Insurance Co. of Canada, 2010 SCC 33, [2010] 2 SCR 245 [Progressive  
Homes], Ledcor and Sabean as establishing a distinct interpretive regime for standard  
form insurance contracts, while Manulife’s position is that these decisions must be  
read in light of the underlying and applicable logic of Sattva. Both rely on the words  
of Wagner J., writing for the majority in Ledcor, where he said:  
[31]  
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 specificˮ: Sattva, at para. 55. Rather, they will  
usually be the same for everyone who may be a party to a particular  
standard form contract. This underscores the need for standard form  
contracts to be interpreted consistently, a point to which I will return  
below.  
[32]  
In sum, for standard form contracts, the surrounding  
circumstances generally play less of a role in the interpretation  
process, and where they are relevant, they tend not to be specific to  
the particular parties. Accordingly, the first reason given  
in Sattva for concluding that contractual interpretation is a question  
of mixed fact and law the importance of the factual matrix carries  
less weight in cases involving standard form contracts.  
[68]  
Manulife says that when Ledcor and Sabean are read properly, the  
- Mosten 40 -  
fundamental precepts of contract interpretation reiterated in Sattva apply to Stage 1  
interpretation of standard form contracts. Manulife also views the words quoted above  
as supporting their position that at least the specifically noted aspects of the  
surrounding circumstances are to be considered at Stage 1. They have a more  
expansive view of the scope of the purpose of the contract, the nature of the  
relationship created and the market in which it operates than does Mosten.  
[69]  
The Supreme Court was not absolute in its statement but rather said  
that “the surrounding circumstances generally play less of a role in the interpretation  
process” (emphasis added). Implicit in this conditional language is that there may be  
circumstances where the surrounding circumstances play a greater role. Manulife says  
that the Court can look to the evidence they have proffered to determine what  
constitutes the purpose of the contract, the nature of the relationship it creates, and the  
market or industry in which it operates.  
[70]  
Mosten says there is no objective evidence of relevant surrounding  
circumstances at the time the contract was formed which assists in providing details  
of these matters. The purpose of the contract, it says, must be determined from the  
words of the contract itself and not from the subjective aspirations or expectations of  
the insurer. Whatever the insurer may have subjectively thought the purpose of the  
contracts was is irrelevant. Mosten says the purpose of the contract is clearly  
expressed within the contract as providing life insurance and investment options.  
[71]  
Mosten says that it is only necessary to look to the contracts themselves  
to ascertain the nature of the relationship created and the market within which they  
operate. The nature of the relationship is one of an insurer agreeing to provide  
insurance and investment options. The market within which this takes place is the life  
insurance industry, which did in fact offer to its insureds both life insurance and  
investment options.  
- Mosten 41 -  
The Context to be Considered at Stage 1 Interpretation of the Contract  
[72]  
The Supreme Court’s decision in Sattva was one of two decisions which  
caused the author Hall to issue the third edition of his text. In his rewrite, Hall deals  
extensively with how Sattva marks a significant shift in the Canadian law of contract  
interpretation. He states that the reaction of a number of courts of appeal to Sattva was  
that its logic did not apply to standard form contracts. He notes that the Supreme  
Court had granted leave to appeal the Alberta Court of Appeals decision in Ledcor  
and the British Columbia Court of Appeals decision in British Columbia (Ministry of  
Forests) v Teal Cedar Products Ltd., 2015 BCCA 263, 386 DLR (4th) 40, and  
expressed the hope that the Supreme Court would be able to clarify this issue. The  
Supreme Court has delivered its decision in Ledcor, expressly stating that the appeal  
presented an opportunity to clarify how Sattva applies to the interpretation of standard  
form contracts. While it did provide some clarification, questions remain and, as a  
result, I must venture into uncharted territory.  
[73]  
Since standard form insurance contracts are contracts, the general rules  
of contract construction apply to their interpretation to some greater or lesser degree  
at some stage in the interpretive process. Those general rules must include what Hall  
describes as fundamental precepts of contractual interpretation in Chapter 2, as well  
as other elements or principles of contractual interpretation found elsewhere in the  
text where applicable. This is clear from paragraph 50 of Ledcor where Wagner J., in  
very concise form, summarizes what Hall calls the fundamental precepts of  
contractual interpretation. However, these general rules or fundamental precepts are  
modified in their application to standard form contracts by the limited scope of the  
context permitted by the decisions in Ledcor and Sabean.  
[74]  
As early as the decision in Consolidated-Bathurst Export Ltd. v Mutual  
Boiler and Machinery Insurance Co., [1980] 1 SCR 888 [Consolidated-Bathurst], the  
- Mosten 42 -  
Supreme Court directed that the general rules of contract construction only apply to  
insurance contracts in the event of ambiguity and, short of ambiguity, the courts are to  
give effect to the clear language of insurance policy. In the intervening years, the  
Supreme Court has reinforced this principle many times. There is, in my opinion, no  
question but that the Supreme Court had established in Progressive Homes, Ledcor  
and Sabean a distinct interpretation regime for insurance policies. The general rules of  
contract interpretation do not apply within what has come to be known as Stage 1  
interpretation of insurance contracts, where the focus is on the text of the contract.  
[75]  
The interpretation of standard form contracts proceeds in two distinct  
phases. In Stage 1, the focus is on the words of the contract alone, but those words  
must be assessed within that limited context identified in paragraph 31 of Ledcor. If  
the meaning and intent cannot be thus determined (i.e., ambiguity exists), that same  
limited context must again be part of the interpretation process at Stage 2. The context  
to be considered, in either phase, is much more limited than the “absolutely anything  
which would have affected the way in which the language of the document would  
have been understood by a ‘reasonable man’” approach of Sattva to the interpretation  
of negotiated contracts. Resort to general rules of construction is only had if  
ambiguity remains at the conclusion of Stage 1.  
[76]  
Progressive Homes was decided in 2010 and concisely summarized the  
primary interpretive principle applicable to insurance policies, being that if, reading  
the contract as a whole, the language of the policy is clear, the court is to give effect  
to it. The Supreme Court continued that when insurance contracts are ambiguous, the  
court then relies on general rules of contract construction and prefers interpretations  
which are consistent with the reasonable expectations of the parties.  
[77]  
In 2014, Sattva held that the law with respect to contract interpretation  
has evolved towards a practical, common sense approach not dominated by technical  
- Mosten 43 -  
rules of construction. Here, the overriding concern is to determine “the intent of the  
parties and the scope of their understanding” within which the importance of the  
surrounding circumstances known to the parties at the time of the contract was viewed  
as necessary context to understanding the words used in the contract.  
[78]  
This decision dealt not with an insurance contract or other form of  
standard contract but with a situation specific contract negotiated between  
sophisticated business people engaged in the businesses of mining and exploration. A  
significant aspect of the decision and its reasons related to the standard of review that  
should apply to an arbitrator’s decision made under the AA of British Columbia.  
Fundamental to the decision was the Courts conclusion that the interpretive process  
there in question involved findings of fact that were entitled to deference on judicial  
review.  
[79]  
It may be assumed that when Sattva was decided in 2014, the Court was  
well aware of the distinct rules for the interpretation of insurance policies then in  
existence. Indeed, the Supreme Court in Sattva referenced Jesuit Fathers of Upper  
Canada v Guardian Insurance Co. of Canada, 2006 SCC 21, [2006] 1 SCR 744  
[Jesuit Fathers], in their decision. In Jesuit Fathers, the Court had held that because  
there was no ambiguity in the insurance policy in question, it was unnecessary to  
resort to the principles specific to the interpretation of insurance policies. There is  
nothing in the reasons for judgment of the Supreme Court in Sattva that suggests the  
decision was intended to alter what it had said in 2010 in Progressive Homes.  
[80]  
In March 2016, the Supreme Court expressly stated at paragraph 20 of  
its decision in Ledcor:  
[20]  
These appeals present an opportunity to clarify how Sattva  
Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R.  
633, applies to the interpretation of standard form contracts,  
- Mosten 44 -  
sometimes called contracts of adhesion.  
The majority reasons of Wagner J. then proceeded to provide an analysis of why the  
reasoning and conclusion in Sattva did not apply to the interpretation of standard form  
contracts.  
[81]  
Ledcor was followed in January 2017 with the Supreme Court’s  
decision in Sabean. It is significant to note that the appeal in Sabean was heard  
October 5, 2016, just after the September 15, 2016, delivery of the court’s decision in  
Ledcor. All seven of the justices hearing and concurring on the decision in Sabean  
had also heard and concurred in the majority decision in Ledcor. Further, four of those  
same justices had heard the appeal and concurred in the reasons given in Sattva.  
[82]  
The conclusion I draw from the foregoing decisions is that the  
interpretation of standard form insurance contracts is subject to the distinct  
interpretive process as outlined in Ledcor. The approach to interpretation set out in  
Sattva applies to negotiated contracts and is not generally to be applied to standard  
form insurance contracts, except that, as stated in paragraph 31 of Ledcor, “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.”  
[83]  
What Ledcor and Sabean did not address is what, in the first instance or  
Stage 1 of the interpretation process of standard form contracts, a court should or may  
look to when determining the purpose of the contract, the nature of the relationship it  
creates and the market or industry in which it operates. This is problematic when, as  
here, a core issue is what is the purpose of the contract. The decision of the Supreme  
Court provides no specific guidance on an important metric, i.e., what can or should  
be considered when assessing the purpose of the contract.  
- Mosten 45 -  
[84]  
I have concluded that in the circumstances of this case, the focus of my  
Stage 1 analysis should be:  
(a)  
(b)  
the language of the contract within its permitted context;  
any extant decisions relating to the standard form of contract in  
question;  
(c)  
reliable legal/academic analysis of the form of standard contract  
in question, i.e., universal life policies;  
(d)  
(e)  
relevant legislative provisions; and  
what the ordinary person entering into such contracts would  
know or should be taken to know about life insurance contracts.  
[85]  
These sources can provide guidance as to the purpose of the contract,  
the nature of the relationship and the market in which the parties were operating. My  
analysis of these limited contextual elements excludes consideration of much of the  
evidence presented by either side. For the most part, this evidence does not satisfy the  
criteria of being objective evidence confined to facts known, or reasonably capable of  
being known, by both parties before or at the date of contracting. Further, it does not  
fall within the permissible scope of context to be considered per Ledcor and Sabean at  
Stage 1. My detailed decision on the evidentiary issues is set forth in a subsequent  
section of this decision.  
[86]  
I have so concluded in part because:  
(a)  
when interpreting a standard form contract, the court can not  
assess how widely that contract has been used and the impact that  
- Mosten 46 -  
the interpretation will have on parties not before the court;  
(b)  
for policy reasons such as those discussed in Ledcor, the  
interpretation must be based solely on the words of the contract  
and circumscribed contexts or surrounding facts as outlined in  
Ledcor, objectively identified and assessed;  
(c)  
(d)  
if surrounding circumstances specific to the subject contracts  
were considered, the objective of consistent interpretations would  
be compromised and precedential value lost; and  
the standard of review applicable to interpretation of standard  
form contracts has been clearly stated by the Supreme Court to  
be correctness. Correctness review can not be effectively  
implemented if the original decision has been informed by a  
unique factual matrix specific to the contract in question.  
Stage 1 Interpretation of the Contract  
1.  
Mosten’s Stage 1 interpretation  
[87]  
Mosten’s interpretive position, in brief, is as I have summarized at  
paragraphs 59 to 62 above.  
2.  
Manulife’s Stage 1 interpretation  
[88]  
Manulife’s interpretive position, in brief, is that the meaning of the word  
“premiums” in a life insurance contract is clear and does not include investments not  
inextricably linked to the life insurance purpose. They say that:  
- Mosten 47 -  
(a)  
(b)  
(c)  
the words of the contract as a whole do not support Mosten’s  
interpretation;  
the Carrier Fund’s role is defined by reference to the policy as a  
whole;  
the Carrier Fund is intended for temporary carriage of prepaid  
premiums or funds in excess of the permitted investments within  
a tax exempt life insurance policy; and  
(d)  
the fact that the Carrier Fund provisions are located within  
Section 3 of the policy, the insurance provision section, is  
instructive as to its purpose.  
My Stage 1 Interpretation  
[89]  
As per the directions in Ledcor, I interpret the contract by careful  
attention to the language of the policy as a whole, having regard to the purpose of the  
contract, the nature of the relationships created by the contract and the market or  
industry in which the contract was obtained. When determining the context matters,  
I will proceed in the manner I outlined in paragraph 84 above.  
[90]  
I find the relevant context to be considered in the interpretation of this  
policy to be as follows:  
(a)  
The purpose of the contract, which I determine from the language  
of the contract and the legislation applicable to life insurance,  
was to provide life insurance and investment opportunities on the  
terms therein set forth. There are no judicial decisions or reliable  
- Mosten 48 -  
legal/academic analysis of universal life insurance policies which  
provide further guidance as to the purpose of such contracts or  
policies.  
(b)  
(c)  
The nature of the relationship was a contract between Aetna and  
Dr. de Bruin, wherein Aetna insured the life of Dr. de Bruin and  
provided for various investment options.  
The market or industry involved was the life insurance industry  
in Canada.  
[91]  
The core issues at this stage then are:  
(a)  
Is the investment purpose of the contract limited to the  
tax-sheltered investment permitted by the Income Tax Act, as a  
function of the amount of life insurance provided under the  
policy or is it, as argued by Mosten, broader and independent  
investment options?  
(b)  
What is the meaning of premiumsas the word is used in the  
contract?  
[92]  
The insured is told at page 1.5, in an Explanation of Contract, that they  
have purchased a universal life insurance policy and that because the policy is  
designed to be flexible, it can also seem very complex.” The insured is told frequently  
to read the policy carefully. There is no explanation within the document what a  
universal life insurance policy is or how it is different from whole life, permanent life  
or term life.  
- Mosten 49 -  
[93]  
The text Jason A. Swales & Erdem Erinc, Canadian Insurance  
Taxation, 4th ed (Toronto: LexisNexis, 2015) at 143, states:  
Permanent insurance policies accumulate a cash reserve that is  
invested and used to subsidize mortality expenses in the later years  
of the contract. This cash reserve becomes available to the  
policyholder as a cash surrender value (CSV). …  
The text then continues at page 144 to say the following:  
The accrual rules were introduced in the 1981 federal budget,  
proposing that the investment income element of all insurance  
policies be taxed on a full accrual basis. At that time, triennial  
accrual by individuals was required for other investment vehicles, so  
it was proposed that the inside build-up of life insurance policies be  
taxed at least every three years. After intense lobbying by the  
insurance industry, a distinction was made between those policies  
that are primarily purchased as investment contracts and those that  
are primarily intended to be insurance contracts. The former type  
became subject to accrual taxation, while the latter type continued to  
build tax-deferred cash values.  
Thus, the exempt policy rules were introduced in 1982 to  
establish a standard, or benchmark, to distinguish between the  
primarily investment-type policies and the primarily insurance-type  
policies. …  
[94]  
The submissions at the hearing did not explore this referenced  
distinction between “the primarily investment-type policies and the primarily  
insurance-type policies”. Canadian Insurance Taxation (which I am treating as  
reliable legal analysis) does inform me as to the historical fact that there was intense  
lobbying by the Canadian life insurance industry for accrual taxation to not apply to  
what the authors describe as those policies which are primarily intended to be  
insurance contracts as opposed to investment contracts and, thus, the exempt policy  
rules were introduced in 1982. Given that the subject contract is clearly intended to  
access the accrual tax exemptions permitted by the Income Tax Act, it logically  
follows that the policy falls within the category of being a primarily insurance-type  
- Mosten 50 -  
policy.  
[95]  
I was not provided with any judicial decisions, texts or academic  
discussions which explained what it is that makes the designation “universal”  
meaningful. The ordinary insured’s understanding of what a universal life form of  
policy provided would be what he or she could infer from reading the policy, which  
includes the statement that it is “flexible” and what he or she was told by the insurer’s  
sales agents. What such sales agents may have said in this case is unknown and, in  
any event, would be impermissible evidence of subjective intention.  
[96]  
Under the Exempt Status heading, page 3.2, the reader is told exempt  
status means the policy is exempt from accrual taxation under the provisions of the  
Income Tax Act. The average insured would or should understand that this exempt  
status was limited to those savings pools described under the heading Investment  
Accounts found at page 5.1  
[97]  
The first sentence of the Investment Accounts section tells the insured  
that Investment Accounts are savings pools within the insurer’s general funds to  
which his or her premiums are directed and from which charges are deducted. The  
reader would understand that his or her premium payments under these contracts  
provided not only life insurance but also limited income tax exempt savings or  
investment options. The reader is told that the insurer is guaranteeing to maintain the  
tax exempt status of the policy and, thus, the tax-sheltered growth of those qualifying  
investments. There is nothing in the contracts that expressly states the only  
permissible investments are those specified under the heading Investment Accounts.  
[98]  
Immediately following the Exempt Status heading is the heading Carrier  
Fund at page 3.3. The first sentence thereunder states, “The Carrier Fund is a special  
account that holds funds in excess of the maximum allowable tax exempt value  
- Mosten 51 -  
calculated by the annual exempt test.” Mosten says that the statement that this Carrier  
Fund holds funds in excess of the maximum allowable tax exempt value, in  
conjunction with other language, would lead the reader to conclude it was available  
for such investments not tied to the life insurance policy portion of the contract.  
[99]  
The third sentence states, “You may base the Carrier Fund on any one  
of the available Investment Accounts.” The second paragraph states, “The Carrier  
Fund is not included in the calculation of the Fund Value. The Carrier Fund will be  
paid to You or Your estate when the contract terminates.” The third paragraph also  
states, “The investment income of the Carrier Fund is subject to annual accrual  
taxation.” An average insured reading this language would understand that funds held  
in this Carrier Fund are also invested to gain income, but that such income is taxable.  
[100]  
At this stage in the interpretive process, I am satisfied the contract is  
unambiguous in the following respects:  
(a)  
(b)  
the policy provides for life insurance protection;  
the policy provides a mechanism for investment that can earn  
tax-sheltered income within the exempt status criteria of the  
policy; and  
(c)  
the policy provides that funds in excess of the cost of insurance  
and the investment in the tax-sheltered Investment Accounts will  
be held in and can be invested in the Carrier Fund and that  
income accruing there will be taxed.  
[101]  
Mosten says its contractual right to pay “additional premiums” and,  
thus, to have them invested in the Carrier Fund arises from the plain language of the  
- Mosten 52 -  
Payment of Premiums provisions found at page 6.2. This paragraph includes the  
statement, “You may make additional premium payments at any time while this  
policy is in force.” A question that may be asked is additional to what?”  
[102]  
Reading the entire paragraph under the heading Payment of Premiums,  
the additional premiums are necessarily additional to the initial planned premium due  
on the Policy Date and subsequent annual or monthly premiums when due. There can  
be little doubt that the initial planned premium and the subsequent annual or monthly  
premiums would relate to the premiums needed to both maintain the life insurance or  
sum insured and to fund the permitted tax-sheltered investment connected to that life  
insurance. The first sentence under the heading Investment Accounts (page 5.1) states,  
“Investment Accounts are savings pools within Our general funds to which Your  
premiums are directed and from which charges are deducted.”  
[103]  
The policy expressly contemplates that the amount of life insurance  
coverage provided can change, i.e., decrease or increase as outlined in the section  
headed Death Benefit Changes (page 3.2). Thus, if the insured wished to increase the  
sum insured, additional premiums would need to be paid beyond the initial planned  
premium. In addition, there are provisions for the amount of life insurance coverage  
to be increased to maintain the exempt status of the policy. Payment of additional  
premiums, beyond the initial planned premiums, would trigger such increases.  
[104]  
Not clear at this stage of the analysis is whether additional premium  
payments may also include monies paid to access taxable investments. Mosten says it  
does because:  
(a)  
anything paid is a premium. There is no other descriptor used in  
the contracts for payments to the insurer; and  
- Mosten 53 -  
(b)  
the words of the Payment of Premiums section make it clear that  
additional premium payments, i.e., premium payments beyond  
what is necessary to maintain the life insurance can be made.  
There is no language which limits additional premium payments  
to funding investments within the Investment Account or which  
limits the amount of premiums that can be paid. The general  
permissive language must be given effect to.  
[105]  
Manulife says that in the context of an insurance policy, premiums”  
has a well understood meaning that restricts premiums to monies paid for insurance.  
Manulife argues that since:  
(a)  
(b)  
the contract is a policy of life insurance; and  
“premiums” has a well-established meaning in the insurance  
context; or  
(c)  
that well-established meaning of premiumsis consistent with  
its use in the subject policy;  
the insured cannot pay into the policy investment monies that do not have the  
character of being premiums.  
[106]  
Citing National Home Warranty Programs Ltd. v Wylie Crump Limited,  
2012 BCSC 1436 at para 77, Manulife says the ordinary meaning of the term  
“premiums” in the insurance industry is clear – that is, consideration passing from the  
insured in exchange for obtaining coverage. Manulife says to the same effect is The  
Saskatchewan Insurance Act, which defines “premium” as:  
- Mosten 54 -  
the single or periodical payment under a contract for the  
insurance, and includes dues, assessments and other considerations;  
[107]  
Manulife says that by reason of the clear meaning of premiums in the  
insurance context, the entitlement to make additional premium payments is limited to  
what is commonly understood by premiums, i.e., payments to purchase insurance, and  
does not extend to make unlimited payments for investments not connected to the life  
insurance purpose of the contract. I accept that payments to fund the future life  
insurance premiums and permitted tax exempt investment would be inextricably  
linked to a life insurance purpose and, thus, monies paid for these purposes would be  
within their view of the purpose of the contract and these definitions of premiums.  
[108]  
Manulife’s position on the meaning of premiums engages two  
questions:  
(a)  
(b)  
Is the purpose of the contract limited to providing insurance and  
tax exempt investment connected with that life insurance, or does  
the contract have a wider purpose of taxable investment  
opportunities as well?  
What meaning is to be given to the provision, “You may make  
additional premiums at any time while this policy is in force”?  
[109]  
Counsel for both sides, in extensive and well-crafted arguments, relied  
upon specific language throughout the contracts to support their respective core  
positions. Mostens position is that:  
(a)  
the purpose of the contract is to provide life insurance, limited  
investments in the tax-sheltered Investment Account and  
unlimited investment in the Carrier Fund;  
- Mosten 55 -  
(b)  
(c)  
the contract permits it to pay additional premium payments at  
any time; and  
premiums in the context of this contract, which contemplate both  
insurance and investments, must be interpreted as meaning any  
payments made by the insured.  
Manulife’s position is that:  
(a)  
the purpose of the contract is to provide life insurance and  
investment options limited to the tax-sheltered investments  
available within the tax-exempt accounts and investments to fund  
future policy premiums which could be invested within either the  
Investment Account or the Carrier Fund;  
(b)  
the word premiumsmust be given its insurance context  
meaning and, thus, any payments proffered which are not for the  
purposes stated above are not premiums, and Manulife is under  
no obligation to accept same.  
My Stage 1 Conclusion  
[110] As stated in Ledcor and in Sabean, at para 13:  
At the first step of the analysis for standard form contracts of  
insurance, the words used must be given their ordinary meaning “as  
they would be understood by the average person applying for  
insurance, and not as they might be perceived by persons versed in  
the niceties of insurance law” ….  
While the structure and language of the policies is complex and the exercise of giving  
- Mosten 56 -  
the words used their ordinary meaning as they would be understood by the average  
person applying for insurance in this form of policy is challenging, the interpretation  
starts with giving the words their ordinary meaning as they would be understood by  
the average person applying for insurance.  
[111]  
From the outset of my hearing of this matter, I have focused on the issue  
of what is the purpose of this contract. Relying on language of the contract itself,  
Mosten says the purpose is both to provide life insurance and investment  
opportunities beyond those tied to the accrual tax exempt investment opportunities. It  
says the language of the policy clearly indicates this to be so.  
[112]  
I have concluded the purpose of these contracts is to provide life  
insurance and investment opportunities within the accrual tax exempt opportunities  
permitted by the Income Tax Act; not investment opportunities unrelated to the  
fundamental life insurance purpose of the contract. Factors that lead me to this  
conclusion include:  
(a)  
the insurer, nominally and licensed as a life insurance company,  
sold to the insured what is clearly identified as a life insurance  
policy, albeit a universal life insurance policy;  
(b)  
there is nothing in the factual matrix related to the initial  
acquisition of this policy that in any way suggests the insured  
was seeking investment opportunities unconnected to the life  
insurance purpose of the policy;  
(c)  
the meaning that I find must be given to the words premium and  
premiums within life insurance policies;  
- Mosten 57 -  
(d)  
(e)  
attributing such a purpose to the policy and meaning to premiums  
harmonizes the language of the policy as a whole; and  
in my opinion, the ordinary insured person would so understand  
the word “premiums” and the policy to be providing life  
insurance and tax-exempt investment opportunities; but not the  
extended opportunities the applicant here says the policy  
provides.  
[113]  
I have concluded that any apparent conflicts or ambiguity in the  
language of the policy raised by counsel are resolved and the various provisions of the  
contract are harmonized by giving to the word “premiums” its commonly understood  
meaning in the context of insurance policies. In doing so, I reject the argument that  
since premiums is an undefined word, it must encompass all payments made by the  
insured to the insurer.  
[114]  
The ordinary insured would understand the statement, “You may make  
additional premium payments at any time while this policy is in force, found in the  
Payment of Premiums section of the contract as permitting prepayment of future  
premiums. The more pertinent question is whether that ordinary insured would  
understand that statement to give him or her the right to make such payments for an  
investment purpose not connected to the life insurance benefits and the Fund Value.  
[115]  
It is my conclusion that the words premiumor premiumsas used in  
this contract would be understood by the ordinary insured to be monies paid by the  
insured to the insurer:  
(a)  
to cover the cost of insurance, premium taxes and policy  
maintenance fees as they come due; and  
- Mosten 58 -  
(b)  
for savings or investment within the Investment Accounts to the  
extent to which such savings or investments were permitted  
within this policy while maintaining its status as an accrual  
income tax-exempt life insurance policy.  
[116]  
I also conclude that the ordinary insured would understand that the  
purpose of the Carrier Fund as outlined in the contract was a fund, distinct from the  
Insurance Policy:  
(a)  
(b)  
to which excess premiums would be transferred to maintain the  
tax-exempt status of the policy;  
within which those premiums and additional prepayments of  
future premiums could be held for future transfer back into the  
policy and while held therein would be invested, but that the  
income thereon would be subject to accrual income taxation; and  
(c)  
from which premium payments could be withdrawn by the  
insured.  
[117]  
I conclude that the ordinary insured would not understand the policy as  
permitting investment within Carrier Fund accounts of monies not infused with the  
character of being premiums for the life insurance benefits.  
My Reasons for This Interpretation and Conclusions  
1.  
The insurance context meaning of “premiums”  
[118]  
I have had the benefit of many days of submissions by very capable  
advocates as to what “premiums” means in the context of this contract, with multiple  
- Mosten 59 -  
reasons why “premiums” means precisely what each says it means. Given the limited  
scope of the factual matrix available to me to be considered in the interpretation of  
this standard form contract, the applicable fundamental precepts of contract  
interpretation and the general rules of contract interpretation, I have concluded that  
“premiums has a singular and established meaning in the insurance context generally,  
with a refinement thereof in the context of a life insurance policy.  
[119]  
There is, in my opinion, no question but that in a general insurance  
context, “premiums” has a universally understood meaning, being the sum paid by the  
insured to the insurer to purchase insurance against the insured against risk. When  
purchasing fire, theft, liability or other forms of fortuity insurance, premiums are quite  
simply the price or cost of the specific insurance purchased. When used in a general  
insurance context, everyone understands precisely what premiums are. I conclude that  
beyond having a commonly understood meaning, in the insurance context  
“premiums” has attained such a status and specific meaning that it has become a legal  
term of art that must be adhered to when interpreting an insurance policy.  
[120]  
This meaning and understanding of “premiums” necessarily gets  
modified when purchasing a life insurance policy where the Income Tax Act permits  
there to be an accrual tax-exempt element to the policy. Here, the ordinary purchaser  
of the life insurance would understand that the term “premiums” relates not only to  
the cost of the life insurance per se, but also the amount permitted to be paid for the  
permitted and associated tax-exempt investment. Given the universally understood  
meaning of “premiums” in the insurance context generally, the ordinary insured,  
purchasing life insurance, would not interpret or understand premium or premiums to  
include investment in opportunities not associated with or tied to the prerequisite life  
insurance purpose or requirements of the policy.  
[121]  
The Alberta Court of Appeal decision in IFP Technologies (Canada)  
- Mosten 60 -  
Inc. v EnCana Midstream and Marketing, 2017 ABCA 157, [2017] 12 WWR 261  
[IFP], leave to appeal to SCC denied, 2018 28111 (SCC), provides significant  
guidance to me. The decision was rendered subsequent to the Supreme Court’s  
decisions in both Sattva and Ledcor and applied those decisions in the interpretation  
before it.  
[122]  
IFP dealt with the interpretation of contracts in the oil and gas industry  
and the meaning to be given to the phrase “working interest” in those contracts. In its  
decision, the Court of Appeal held that the term “working interest” was a legal term of  
art that had an accepted meaning and usage in the oil and gas industry and interpreted  
the contracts in question using that accepted meaning and usage. It held that while the  
customary meaning could be modified by parties to an agreement, in the absence of  
such modification a trial judge cannot ignore the customary meaning or usage of a  
phrase within an industry and to do so would be an error in law.  
[123]  
In the course of her reasons, Fraser C.J.A said a number of things that  
are instructive with respect to the law of contractual interpretation generally and how  
to interpret a word or phrase that may be a term of art within a particular industry.  
Thus, I quote extensively:  
[60]  
Where a standard form contract is involved, the standard of  
review that applies to its interpretation is usually correctness: Ledcor  
Construction Ltd. v Northbridge Indemnity Insurance Co., 2016 SCC  
37 at paras 4, 24, 46, 48, [2016] 2 SCR 23 [Ledcor]. As the Supreme  
Court noted, these are highly specialized contracts typically sold  
widely to customers without negotiation of their terms and their  
interpretation could affect a large number of people. As a result, it  
would be undesirable for courts to interpret identical standard form  
provisions inconsistently.  
[61]  
By analogy, this reasoning applies with equal force to legal  
terms of art which have a common meaning to participants in a given  
industry. In such event, there is no identified need to define what  
such terms mean. Participants in the oil and gas industry rely on the  
commonly accepted usage of many terms: see, for example, the  
- Mosten 61 -  
Glossary of Land Terms published by the Canadian Association of  
Petroleum Land Administration (CAPLA): CAPLA, “Glossary of  
Land Terms 2016”, NEXUS (September 2016) 9 at 15.5 “Working  
interest” is one of them. Since this term has an accepted meaning and  
usage in this sector, and its interpretation has precedential value, it  
must therefore be interpreted consistently. Thus, where the issue  
involves the meaning of a legal term of art – in this case, “working  
interest” as used in the oil and gas industry – the standard of review  
with respect to the meaning of that term is correctness.  
[62] While a legal term of art may be modified by the parties  
to an agreement, that does not permit a trial judge to ignore the  
meaning attributable to it in the absence of such modification.  
To do so is tantamount to failing to take into account a key  
term of a contract or relevant factor or ignoring applicable  
principles and governing authorities. That, in turn, is a question  
of law reviewable for correctness: Sattva [2014 SCC 53] at  
para 53; Deslaurier Custom Cabinets Inc. v 1728106 Ontario  
Inc., 2017 ONCA 293 at paras 65-68. Accordingly, a trial  
judge’s failure to recognize that a legal term of art has a certain  
meaning is, by itself, an error of law reviewable for  
correctness. That is what happened here.  
[79]  
I now turn to a brief overview of the applicable principles of  
contractual interpretation. The goal of contractual interpretation is to  
determine the objective intent of the parties at the time the contract  
was made through the application of legal principles of  
interpretation: Sattva, supra at para 49. To this end, “the exercise is  
not to determine what the parties subjectively intended but what a  
reasonable person would objectively have understood from the  
words of the document read as a whole and from the factual matrix”:  
Geoff R. Hall, Canadian Contractual Interpretation Law, 2nd ed  
(Markham: LexisNexis, 2012) at 33 [Hall]. Accordingly, disputed  
contractual terms must be interpreted, not in isolation, but in light of  
the contract as a whole: Tercon Contractors Ltd. v British Columbia  
(Transportation and Highways), 2010 SCC 4 at para 64, [2010] 1  
SCR 69.  
[80]  
One aspect of the current law on contractual interpretation  
engaged by this appeal relates to the relevance of the factual matrix.  
In Sattva, the Supreme Court finally clarified that courts ought to  
“have regard for the surrounding circumstances of the contract –  
often referred to as the factual matrix when interpreting a written  
contract” (para 46). Why? As the Supreme Court noted,  
“ascertaining contractual intention can be difficult when looking at  
words on their own, because words alone do not have an immutable  
or absolute meaning” (para 47).