- Atwater 26 -
Following the above, Rothstein J. undertook a discussion of “The Role
and Nature of the ‘Surrounding Circumstances’” wherein he said the following:
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).
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.
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.,  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