Mosten Investments LP v The Manufacturers Life Insurance Company (Manulife Financial)

Court of Appeal for Saskatchewan

Citation: Mosten Investments LP v The

Manufacturers Life Insurance Company

(Manulife Financial), 2021 SKCA 36

Date: 2021-03-10

Docket: CACV3407

Between:

Mosten Investment LP

Appellant/Respondent on Cross-Appeal

(Applicant)

And

The Manufacturers Life Insurance Company o/a Manulife Financial

Respondent/Appellant on Cross-Appeal

(Respondent)

Docket: CACV3408

Between:

Atwater Investment LP

Appellant/Respondent on Cross-Appeal

(Applicant)

And

BMO Life Assurance Company

Respondent/Appellant on Cross-Appeal

(Respondent)

Docket: CACV3409

Between:

Ituna Investment LP

Appellant/Respondent on Cross-Appeal

(Applicant)

And

Industrial Alliance Insurance and Financial Services Inc.

Respondent/Appellant on Cross-Appeal

(Respondent)

Before:

Caldwell, Barrington-Foote and Tholl JJ.A.

Disposition:

Appeals allowed in CACV3407 and CACV3408; Appeal dismissed in

CACV3409; Cross-Appeals allowed in part

Written reasons by:

The Court

On appeal from:

Appeals heard:

2019 SKQB 75, 2019 SKQB 76, 2019 SKQB 77, Saskatoon

January 15, 16 and 17, 2020

Counsel:

Ronald Miller, Q.C. and Amanda Quayle, Q.C. for Mosten Investment LP

Linda Plumpton, Toshach Weyman and Winston Gee for The

Manufacturers Life Insurance Company o/a Manulife Financial

Gordon Kuski, Q.C., Amanda Quayle, Q.C. and William Lane for Atwater

Investment LP

Munaf Mohamed, Q.C. and Christine Viney for BMO Life Assurance

Company

Shaunt Parthev, Q.C. and Janelle Souter for Ituna Investment LP

Patricia Jackson, David Outerbridge, Lara Guest and Shalom Cumbo-

Steinmetz for Industrial Alliance Insurance and Financial Services Inc.

i

TABLE OF CONTENTS

I. INTRODUCTION .................................................................................................................. 1

II. INTERPRETATION............................................................................................................... 3

A. The Parties and their Appeals and Cross-appeals............................................................... 3

B. Reference Points ................................................................................................................. 3

C. The Nature of a ULP........................................................................................................... 5

D. The Dispute that Underpins the Appeals ............................................................................ 7

III.

ISSUES ............................................................................................................................... 8

A. CACV3407 – Mosten Appeal............................................................................................. 8

B. CACV3407 – Manulife Cross-appeal................................................................................. 8

C. CACV3408 – Atwater Appeal............................................................................................ 9

D. CACV3408 – BMO Life Cross-appeal............................................................................... 9

E. CACV3409 – Ituna Appeal................................................................................................. 9

F. CACV3409 – Industrial Alliance Cross-appeal................................................................ 10

IV.

STANDARDS OF REVIEW............................................................................................ 10

A. In General.......................................................................................................................... 10

B. In Contract Interpretation.................................................................................................. 11

1.

2.

3.

The Parties’ Positions................................................................................................. 11

The Supreme Court Jurisprudence ............................................................................. 12

Precedential Value...................................................................................................... 14

C. In the Exercise of Judicial Discretion ............................................................................... 24

D. In Evidentiary Matters ...................................................................................................... 25

V. THE SATTVA APPROACH.................................................................................................. 25

A. Consensus Ad Idem........................................................................................................... 25

B. The Factual Matrix............................................................................................................ 30

C. Legislation and Terms of Art............................................................................................ 35

VI.

ANALYSIS....................................................................................................................... 40

A. Introduction....................................................................................................................... 40

B. Issues Common to All Three Matters ............................................................................... 41

1.

2.

3.

4.

Evidentiary Issues....................................................................................................... 41

Case Law Interpreting ULPs ...................................................................................... 43

Terms of Art: Premium and Payment of Premiums ................................................... 48

The Sattva Approach and Insurance Law Principles.................................................. 54

C. Application of the Law in Each Appeal............................................................................ 55

1. CACV3407 – Mosten v Manulife............................................................................... 55

ii

a.

b.

c.

d.

e.

f.

Relief Sought at the Court of Queen’s Bench......................................................... 55

Relief Denied by the Judge..................................................................................... 57

The de Bruin ULP................................................................................................... 62

Interpretation of the de Bruin ULP ......................................................................... 63

Interpretation as a Harmonious Whole ................................................................... 71

Declarations Granted by this Court......................................................................... 76

CACV3408 – Atwater v BMO Life............................................................................. 77

Relief Sought at the Court of Queen’s Bench......................................................... 77

Relief Denied by the Judge..................................................................................... 79

The Walkom ULP................................................................................................... 81

Interpretation of the Walkom ULP ......................................................................... 92

Declarations Granted by this Court......................................................................... 94

CACV3409 – Ituna v Industrial Alliance................................................................... 95

Relief Sought at the Court of Queen’s Bench......................................................... 95

The Term Allocation Contravention....................................................................... 97

The Zinkhan ULP and its Interpretation ............................................................... 101

Disposition by this Court ...................................................................................... 114

2.

3.

a.

b.

c.

d.

e.

a.

b.

c.

d.

D. The Cross-Appeals on the Regulation ............................................................................ 114

1.

Background............................................................................................................... 114

Context.................................................................................................................. 114

The Regulation, Insurance Act and Interpretation Legislation............................. 119

Principles of Statutory Interpretation.................................................................... 120

Decisions............................................................................................................... 123

Common Error in the Decisions............................................................................... 125

Vires...................................................................................................................... 125

Interpretation......................................................................................................... 127

Interpretation of the 2018 Regulation....................................................................... 131

Not Declaratory..................................................................................................... 133

Not Retroactive or Retrospective.......................................................................... 135

Interpretation......................................................................................................... 135

Statement of Interpretation—2018 Regulation..................................................... 152

Interpretation of the 2020 Regulation....................................................................... 152

Consequential Amendments ................................................................................. 153

Interpretation......................................................................................................... 153

Statement of Interpretation—2020 Regulation..................................................... 156

a.

b.

c.

d.

2.

3.

a.

b.

a.

b.

c.

d.

4.

a.

b.

c.

VII. CONCLUSION............................................................................................................... 156

ii

Page 1

The Court

I.

INTRODUCTION

[1]

This judgment addresses appeals and cross-appeals brought in respect of decisions of a

Court of Queen’s Bench judge [Judge] in three separate Chambers applications in which he

interpreted both a universal life insurance policy [ULP] and The Saskatchewan Insurance (Licence

Condition) Amendment Regulations, 2018, Sask Reg 75/2018 [2018 Regulation]. In each case, an

appellant brought an originating application pursuant to s. 11 of The Queen’s Bench Act, 1998,

SS 1998, c Q-1.01, and Rule 3-49(1)(d) of The Queen’s Bench Rules, seeking a determination of

the rights of the insured under a ULP issued or assumed by one of the respondent insurance

companies.

[2]

The Judge heard the applications consecutively and rendered three separate but similar

decisions: Ituna Investment LP v Industrial Alliance Insurance and Financial Services Inc.,

2019 SKQB 75 [Ituna Decision]; Mosten Investment LP v The Manufacturers Life Insurance

Company o/a Manulife Financial, 2019 SKQB 76 [Mosten Decision]; and Atwater Investment LP

v BMO Life Assurance Company, 2019 SKQB 77 [Atwater Decision]. In each, the Judge dismissed

the insured’s application for declaratory relief because the declarations sought were not supported

on his interpretation of the insurer’s ULP. The Judge also interpreted the 2018 Regulation as

having “only prospective effect”, from which it may be inferred that the Judge found the 2018

Regulation did not interfere with the insured’s rights under a contract for life insurance that had

been entered into prior to its enactment.

[3]

Each appellant appealed against the interpretation of their ULP and each respondent cross-

appealed against the interpretation of the 2018 Regulation. Broadly speaking, the primary issue

raised in the appeals relates to whether the Judge erred when he found the ULPs did not “provide

for unlimited stand-alone investment opportunities within [a side account]” (Mosten Decision at

para 357; Atwater Decision at para 356; and Ituna Decision at para 299). There are secondary

issues in each appeal, some relating to whether an insurer is entitled, on its own initiative, to refund

or reject monies tendered by an insured for investment under the ULP in question. These issues

also give rise to allegations in the appeals and cross-appeals that the Judge erroneously ruled

Page 2

certain evidence was or was not relevant to the interpretation of a ULP. The principal issue in the

cross-appeals is whether the Judge erred when he found the 2018 Regulation did not affect the

ULPs at issue because they had been entered into prior to its enactment.

[4]

The appeals also raise fundamental questions as to the proper way to approach the

interpretation of a contract and as to the standard of appellate review applicable in such cases.

While acknowledging that the law in this regard is not without its controversy, we find the Supreme

Court of Canada jurisprudence sets forth a single, comprehensive approach to contract

interpretation and identifies discernable principles for selecting the applicable standards of

appellate review in cases of contract interpretation. On that basis, we find that the correctness

standard of appellate review applies to the issues of contract interpretation raised in these appeals.

[5]

Applying the appropriate standards of review, having reviewed the record of each

application in the Court of Queen’s Bench and the Judge’s reasons for judgment in each

application, and having considered the parties’ submissions in each of the appeals and cross-

appeals, we:

(a)

allow the appeal under CACV3407 between Mosten Investment LP [Mosten] and

The Manufacturers Life Insurance Company o/a Manulife Financial [Manulife], set

aside the Judge’s interpretation of the ULP in that case, and interpret it as permitting

unlimited, stand-alone investment within the side account;

(b)

allow the appeal under CACV3408 between Atwater Investment LP [Atwater] and

BMO Life Assurance Company [BMO Life], set aside the Judge’s interpretation of

the ULP in that case, and interpret it as permitting unlimited, stand-alone

investment within the side account;

(c)

(d)

dismiss the appeal under CACV3409 between Ituna Investment LP [Ituna] and

Industrial Alliance Insurance and Financial Services Inc. [Industrial Alliance];

allow the cross-appeals in part, set aside the Judge’s interpretation of the 2018

Regulation, and interpret and construe the 2018 Regulation, as well as s. 2-5.1

[2020 Regulation] of The Insurance Regulations, RRS c I-9.11 Reg 1 [Insurance

Page 3

Regulations], as prospective legislation that is universally applicable to all licensed

insurers in Saskatchewan from the date of its enactment;

(e)

(f)

make no order as to costs in either this Court or in the Court of Queen’s Bench in

the appeals and cross-appeals under CACV3407 and CACV3408; and

order Ituna to pay Industrial Alliance’s costs in the Court of Queen’s Bench and on

the appeal and cross-appeal under CACV3409.

II.

INTERPRETATION

A.

The Parties and their Appeals and Cross-appeals

[6]

The appellants (cross-respondents) are Mosten in CACV3407, Atwater in CACV3408 and

Ituna in CACV3409. When we refer to the Appellants in these reasons, it is a collective reference

to Mosten, Atwater and Ituna, regardless of whether we are referring to an appeal or cross-appeal.

[7]

The respondents (cross-appellants) are Manulife in CACV3407, BMO Life in CACV3408

and Industrial Alliance in CACV3409. A reference to the Respondents is a collective reference to

Manulife, BMO Life and Industrial Alliance.

[8]

When referring collectively to the Appellants and the Respondents, e.g., when all of them

agree on some point, we use the word parties; however, we also use that word generically to refer

to the parties to a contract, relying on context to indicate usage. When addressing the appeals, we

refer to a specific appeal by the name of the Appellant, i.e., the Mosten Appeal, the Atwater Appeal

or the Ituna Appeal. We refer to all of the appeals and cross-appeals collectively as these matters.

B.

Reference Points

[9]

We refer to the Lieutenant Governor in Council for the Province of Saskatchewan as the

Lieutenant Governor. Where there is no need to differentiate between the two regulations at issue

in the cross-appeals, we use the word Regulation to refer to both the 2018 Regulation and the 2020

Regulation.

Page 4

[10] As noted, each appeal pertains to the interpretation of a specific ULP, namely:

(a)

In the Mosten Appeal, a ULP issued by Aetna Life Insurance Company of Canada

[Aetna Life] on November 19, 1997, as Policy No. F 2239527, insuring the life of

Walter de Bruin and recording Dr. de Bruin as the applicant, insured and

beneficiary and to which Mosten later added Michael Hawkins as an insured life

after acquiring Dr. de Bruin’s interests under the ULP [de Bruin ULP]. Manulife

acquired the rights, liabilities and obligations of Aetna Life under the de Bruin ULP

in 2004.

(b)

In the Atwater Appeal, two identical ULPs issued by AIG Life Insurance Company

of Canada [AIG] (which was BMO Life’s corporate name prior to April 1, 2009),

both issued on February 18, 2002, recording the applicant, the insured and the

beneficiary as 605945 Saskatchewan Ltd. [605945] (whose sole shareholder and

officer was Conrad Walkom) and insuring the lives of Mr. Walkom and his

daughter, Brittany Walkom, under Policy 16551, and insuring the lives of

Mr. Walkom and his daughter, Shayla Walkom, under Policy 13468 [because they

are, for relevant purposes, identical, we refer to these two ULPs in the singular, as

the Walkom ULP]. 605945 assigned its interests under the Walkom ULP to Atwater

on December 31, 2008. Atwater then added Mr. Hawkins as the life insured under

the Walkom ULP.

(c)

In the Ituna Appeal, a “Flex Account” or “Special Flex 5” ULP issued by The

National Life Assurance Company of Canada [National Life], a subsidiary of

Industrial Alliance, on August 20, 1999, as Policy 4005565, recording the

applicant, the insured and the life insured as Fred Zinkhan and the beneficiary as

Karen Zinkhan [Zinkhan ULP]. National Life transferred its business and assets,

including the Zinkhan ULP, to Industrial Alliance in 2005. Mr. Zinkhan assigned

the Zinkhan ULP to Ituna on March 19, 2009. Ituna substituted Mr. Hawkins as the

life insured under the Zinkhan ULP, effective September 11, 2011.

Page 5

C.

The Nature of a ULP

[11] A ULP is a contract for life insurance that allows the insured to take advantage of

accrual-tax exemption provisions under the Income Tax Act, RSC 1985, c 1 (5th Supp), and the

Income Tax Regulations, CRC, c 945 [together, Tax Rules]. Typically, an insured obtains a tax

advantage on investment income by means of an account where the return on investment is exempt

from accrual tax, provided sums in the account do not exceed limits established under the Tax

Rules [exempt account]. Separate and apart from this, the insurer may receive, hold and invest

sums on behalf of an insured in an account that is not exempt from accrual tax under the Tax Rules

[side account].¹In these reasons, exempt account refers to: (i) the “Investment Accounts” under

the de Bruin ULP; (ii) the “Investment Accounts” under the Walkom ULP; and (iii) the “Flex

Account” under the Zinkhan ULP; and, side account refers to: (i) the “Carrier Fund” under the

de Bruin ULP; (ii) the “Side Account” under the Walkom ULP; and (iii) the “Express Account”

under the Zinkhan ULP.

[12] As is evident, every ULP is a life insurance contract. However, a ULP that provides for a

side account also has a non-insurance aspect; that is, it is an investment contract. It is at once both

of these things and neither of them as a whole. In our view, such a ULP is not Janus-faced; it is an

amalgam of its two faces. An understanding of its general nature as a contract is important because,

in certain respects, the law applies different rules to the interpretation of insurance contracts and

consumer contracts than to the contracts that lack those characteristics. This is so despite the fact

that, as we explain below, all contracts must be interpreted in accordance with the same basic

analytical framework, which we, like the Judge, describe as the Sattva approach, in reference to

that articulated by Rothstein J. in Sattva Capital Corp. v Creston Moly Corp., 2014 SCC 53, [2014]

2 SCR 633 [Sattva].

[13] The law approaches the interpretation of an insurance contract differently than other types

of contracts for several reasons. Insurance contracts serve the interests of society as a whole by

spreading the risk of fortuitous loss broadly. They are generally contracts of adhesion. The parties

1

The term side account is defined under s 3.1(1)(c) of the 2018 Regulation and under s. 2-5.1(1) of the 2020

Regulation as “an account associated with a life insurance policy that holds amounts in excess of the maximum amount

permitted to be held in a life insurance policy that is exempt from accrual taxation pursuant to the Income Tax Act

(Canada)”.

Page 6

to them are, for the most part, significantly disparate in their knowledge of the relevant law and

insurance practices and, conversely, in their knowledge of facts relevant to the assessment of risks.

For these and other reasons, Parliament and the provincial legislatures have passed laws governing

the content of insurance contracts and setting out the rights and obligations of the parties to them

(see, generally, the Insurance Companies Act, SC 1991, c 47, The Insurance Act, SS 2015, c I-9.11

[The Insurance Act, 2015], and the Insurance Regulations). In some respects, the relevant

legislation reflects public policy decisions taken to ensure that insurance contracts comport with

community values.

[14] For similar reasons, the courts have developed what is known as the doctrine of utmost

good faith (uberrima fides; see Carter v Boehm (1766), 97 ER 1162; Coronation Insurance Co. v

Taku Air Transport Ltd., [1991] 3 SCR 622; Whiten v Pilot Insurance Co., 2002 SCC 18, [2002]

1 SCR 595; and Fidler v Sun Life Assurance Co. of Canada, 2006 SCC 30, [2006] 2 SCR 3),

recognising the near fiduciary aspect of an insurance contract. As the Judge observed, the courts

have also developed special principles of interpretation for insurance contracts (see Geoff R. Hall,

Canadian Contractual Interpretation Law, 3d ed (Toronto: LexisNexis, 2016) at 241–255 [Hall

Text]).

[15] A pivotal question in these matters is whether all of this “insurance law” applies when

interpreting the contracts at issue here because, as we have noted, the ULPs are at once both life

insurance contracts and investment contracts. In our view, it is unnecessary, and would be

incorrect, to interpret these ULPs in a manner that ignores this fundamental characteristic. Rather,

when it exists, the interpreting court should focus on the specific issues of contract interpretation

raised by the parties and ask whether those issues engage any of the specialised principles of

contract interpretation that apply to insurance contracts and to life insurance contracts in particular.

[16] That is the approach we have taken in these appeals. The ULPs at issue here all have these

two aspects of insurance and investment, albeit their texts differ. Clearly, the principles of

interpretation that apply to life insurance contracts apply to certain aspects of ULPs. However, we

conclude that they do not apply to significant parts of these ULPs and, in particular, do not apply

to the issues of interpretation raised by the parties in these appeals. Further, as both the insurance

and investment aspects of the ULPs strongly indicate that a ULP is a consumer contract, as opposed

Page 7

to a commercial contract or a contract between participants in a given industry, we have interpreted

them in a manner that takes account of that characteristic (see Hall Text at 217–221).

D.

The Dispute that Underpins the Appeals

[17] As noted, the amount an insured may invest within an exempt account is limited by the Tax

Rules. The Tax Rules do not limit the amount an insured may invest within a side account. The

common dispute, which underpins each appeal, is whether there is a contractual limit on the

amount an insured may invest in a side account.

[18] One reason the answer to that question is important to the parties is that some of the

investment opportunities made available under the ULPs in question are guaranteed investment

products with fixed rates of return that were established years ago, at the time of contract

formation. At that time, interest rates were much higher than today. In the result, the rates of return

under these ULP investment products well-exceed what is currently available under comparable

investment products. The ULPs also contain investment bonus provisions that, if exercised by an

insured, further enhance the insured’s rate of return and increase the cost to the insurers who agreed

to provide them.

[19] In their applications, the Appellants asked the Judge to declare that they had a contractual

right to invest unlimited amounts within a side account. The Respondents argued the ULPs ought

to be interpreted as establishing a contractual limit on the amount that may be invested or held in

a side account. The Judge found the ULPs did not “provide for unlimited stand-alone investment

opportunities” within a side account. The various issues raised in the appeals all relate to whether

the Judge erred in that regard.

[20] With that background in mind, we turn to consider the issues arising in these matters.

Page 8

III. ISSUES

[21] The Appellants and the Respondents have put several issues before the Court.

A.

CACV3407 – Mosten Appeal

[22] Mosten asks the Court to determine whether the Judge erred:

(a)

(b)

by finding the purpose of the de Bruin ULP was both protection and investment but

that the general economic purpose of insurance does not include investment;

when interpreting the word premium in the de Bruin ULP by (i) treating it as a legal

term of art instead of using its plain and ordinary meaning, (ii) finding an insured

is an insurance industry participant, (iii) finding Manulife could restrict the amount

of premiums paid under the ULP, and (iv) finding Manulife could refund excess

premiums without having received a request therefor;

(c)

by declining to exercise his jurisdiction to address (i) Mosten’s request for a

declaration regarding an investment bonus, and (ii) the way in which an investment

bonus is calculated and credited under the de Bruin ULP; and

(d)

by striking evidence adduced by Mr. Hawkins, a principal of Mosten², and when

he considered evidence adduced by Greg Cerar, an affiant of Manulife.

B.

CACV3407 – Manulife Cross-appeal

[23] Manulife cross-appeals against the Mosten Decision alleging the Judge erred by

considering an overly narrow factual matrix and by excluding evidence on grounds of

inadmissibility or irrelevance. Manulife also asserts the Judge erred by finding the Regulation is

not declaratory and, if not, Manulife asserts the Regulation has retroactive effect or, in the further

alternative, retrospective effect.

²Mr. Hawkins is also a principal of Atwater and Ituna.

Page 9

C.

CACV3408 – Atwater Appeal

[24] Atwater asks the Court to determine whether the Judge erred:

(a)

when defining the word premium in the Walkom ULP by (i) attributing an

expectation to an insured that is not supported by the words of the ULP, (ii) failing

to use the plain and ordinary meaning of the payment of premiums provision in the

ULP, (iii) finding an insured is an insurance industry participant, and (iv) placing

undue emphasis on the tax-exempt investment aspect of the ULP while ignoring its

taxable investment aspect;

(b)

by relying on an industry publication to determine the purpose of ULPs generally

and by holding that an ordinary insured would know the niceties of insurance

taxation; and

(c)

by admitting what is known as the Dietrich Affidavit, which it says is hearsay.

CACV3408 – BMO Life Cross-appeal

D.

[25] BMO Life’s cross-appeal against the Atwater Decision alleges the Judge erred by

considering an overly narrow factual matrix and by excluding evidence on grounds of

inadmissibility or irrelevance. BMO Life also asserts the Judge erred by finding the Regulation is

(i) not declaratory, (ii) ultra vires the Lieutenant Governor, (iii) not retroactive, and (iv) not

retrospective.

E.

CACV3409 – Ituna Appeal

[26] Ituna asks the Court to find that the Judge erred:

(a)

(b)

(c)

when defining the word premium under the Zinkhan ULP;

in applying the principles of interpretation to standard form insurance contracts;

in his approach to and use of context in the interpretation of a standard form

contract;

Page 10

(d)

by conflating the first two stages of interpretation under Ledcor Construction Ltd.

v Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 SCR 23 [Ledcor];

(e)

(f)

(g)

by erroneously basing his analysis on a faulty understanding of a ULP;

by finding premium is a legal term of art;

by finding an ordinary insured would have understood the niceties of the insurance

and investment interaction under a ULP;

(h)

(i)

(j)

by ignoring and rewriting provisions of the Zinkhan ULP, leading to absurdities;

by striking portions of Mr. Hawkins’s affidavit and reply affidavit; and

by declining to exercise his jurisdiction to grant the declarations it sought thereby

failing to address what it describes as the Term Allocation Contravention.

F.

CACV3409 – Industrial Alliance Cross-appeal

[27] In its cross-appeal against the Ituna Decision, Industrial Alliance alleges the Judge erred

by considering an overly narrow factual matrix and by excluding evidence on grounds of

inadmissibility or irrelevance. Industrial Alliance asserts the Judge erred by finding the Regulation

is (i) not declaratory, (ii) ultra vires the Lieutenant Governor, and (iii) not retrospective.

IV. STANDARDS OF REVIEW

A.

In General

[28] The appellate standard of palpable and overriding error applies to all questions of fact

(Housen v Nikolaisen, 2002 SCC 33 at para 10, [2002] 2 SCR 235 [Housen]; and H.L. v Canada

(Attorney General), 2005 SCC 25 at para 53, [2005] 1 SCR 401). Absent an “extricable question

of law”, the standard of palpable and overriding error also applies to questions of mixed fact and

law (Housen at paras 31 and 33; and Sattva at paras 52–53). The standard of correctness applies

to questions of law (Housen at paras 8–9 and 33). The interpretation of a statutory instrument is a

question of law (TELUS Communications Inc. v Wellman, 2019 SCC 19 at para 30, [2019] 2 SCR

144; Heritage Capital Corp. v Equitable Trust Co., 2016 SCC 19 at para 23, [2016] 1 SCR 306

Page 11

[Heritage Capital]; and Canadian National Railway Co. v Canada (Attorney General), 2014 SCC

40 at para 33, [2014] 2 SCR 135; see also Canada (Minister of Citizenship and Immigration) v

Vavilov, 2019 SCC 65 at para 37, 441 DLR (4th) 1).

B.

In Contract Interpretation

1. The Parties’ Positions

[29] The parties agree that the ULP at issue in their respective appeals is a standard form

contract. For the most part, they also agree that the interpretation of their respective ULP, qua

standard form contract, raises questions of law that are subject to appellate review on the standard

of correctness. In this regard, they rely on the majority reasons in Ledcor, where Wagner J. (as he

then was) wrote:

[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.

[30] While BMO Life agrees that the correctness standard applies to the interpretation of the

Walkom ULP, it submits some issues of interpretation could still give rise to a question of mixed

fact and law because extrinsic evidence exists to assist the court. BMO Life also characterises the

interpretation of the Walkom ULP as having low precedential value to anyone other than insurers

and hedge fund investors. In its cross-appeal, BMO Life argues the Judge erred by adopting an

overly narrow view of the evidence that is admissible in the interpretation of a standard form

insurance contract under the first of the three stages of the approach outlined in Ledcor. If the

Judge should have considered a broader factual matrix, BMO Life says the appropriate standard

of review would be palpable and overriding error (Ledcor at para 48; and Sattva). Even so, BMO

Life submits the identification of the correct legal test to be applied is a question of law that attracts

the standard of correctness (Sattva at para 49).

Page 12

2.

The Supreme Court Jurisprudence

[31] While the parties have, in most respects, agreed that correctness is the standard of review

applicable in these appeals, we acknowledge that the law relating to this issue is not without

controversy. However, we do not subscribe to the view, espoused by some, that the Supreme Court

of Canada dicta on this issue is inconsistent or conflicting. As we see it, the Supreme Court of

Canada jurisprudence sets forth a single, comprehensive approach to contract interpretation and

identifies discernable principles for selecting the applicable standards of appellate review in cases

of contract interpretation. Based on that jurisprudence, as we explain below, we agree that the

correctness standard of appellate review applies to the issues of contract interpretation raised in

these appeals.

[32] As noted, academic criticism has been leveled at Supreme Court of Canada jurisprudence

on contract interpretation in recent years and, particularly, its dicta on the applicable standard of

appellate review; see: Angela Swan, Jakub Adamski & Annie Y. Na, Canadian Contract Law, 4th

ed (Toronto: LexisNexis, 2018) at 733–735 [Swan Text]; Hall Text at 146–153; John D. McCamus,

The Law of Contracts, 3d ed (Toronto: Irwin Law, 2020) at 853–860 [McCamus Text]; Sandra L.

Corbett and Ryan P. Krushelnitzky, “Through the Scratched Looking Glass: Sattva, Ledcor, Teal

and Developments in the Law of Contract” (2017) 1 Ann Rev Civ Lit 379; Earl A. Cherniak,

“Sattva Revisited” (2015) 34:2 Adv J 6 at 7; Andrea M. Bolieiro, “Ledcor and the Trouble with

Taking a Categorial Approach to Standards of Review” (2017) 35:4 Adv J 35; and Daniele

Bertolini, “Unmixing the Mixed Questions: A Framework for Distinguishing Between Questions

of Fact and Questions of Law in Contractual Interpretation” (2019) 52 UBC L Rev 345. In the

Swan Text at pages 723–724, the authors comment on Sattva, Ledcor and Sabean v Portage La

Prairie Mutual Insurance Co., 2017 SCC 7, [2017] 1 SCR 121 [Sabean], which the parties placed

at the core of these appeals, querying:

8.100 Where do we go from here? The Supreme Court has made so many inconsistent

and conflicting statements in such an amazingly short time that the law on contractual

interpretation could be anything—blinding flash (except where ambiguous), intention of

the parties or even the protection of their reasonable expectations. No single comprehensive

approach to contractual interpretation that covers all contracts exists. But if that is the case,

should not the court have expressly stated it? Moreover, is that approach consistent with

the court’s recent view, affirming the existence of a unifying principle, the “general

organizing principle” of good faith performance, underlying all contractual relations?

(Footnotes omitted)

Page 13

[33] As to the standard of review, the Swan Text also suggests that “[t]he problem... is that the

issues that decide whether one or the other standard [of review] is applicable also go to establishing

the surrounding circumstances used to interpret a contract and, hence, the two issues get hopelessly

tangled up” (Swan Text at 724, footnote 193). In our view, the opposite is true, at least in relation

to standard form contracts. The factors relevant to whether the correctness standard applies do not

establish whether there are surrounding circumstances relevant to the interpretation of such a

contract. It is the reverse; the existence or non-existence of a factual matrix or of circumstances

surrounding contract formation specific to the parties to such a contract determines the standard

of review. As we will explain, this is not to say that circumstances that are not specific to the

contracting parties are irrelevant to issues of standard form contract interpretation. But, if the

contract is in a standard form and there are no such surrounding circumstances, its interpretation

may have precedential value and, therefore, the correctness standard of appellate review applies.

If the contract is not in a standard form or there are circumstances surrounding its formation

particular to the parties and that are relevant to the issue of interpretation, the standard of review—

absent an “extricable” question of law—–is palpable and overriding error.

[34] Although we have referred here to a standard form contract, we would emphasise that it is

misleading to speak as if the question as to the applicable standard of review relates to the contract

as a whole. The question is the applicability of a standard of review to the issue or issues of

interpretation put before the appellate court. An issue may relate to the contract as a whole. It may

relate only to a single clause that is itself in a standard form and that is not affected by the

circumstances surrounding contract formation specific to the parties. The interpreting court may

be faced with issues of interpretation that, on appeal, attract the correctness standard along with

issues that attract the palpable and overriding error standard. With these considerations in mind,

we have chosen to use the phrase issue of standard form contract interpretation in these reasons

when speaking about the interpretation of standard form contract language in the absence of a

meaningful factual matrix that is specific to the parties. To be clear, the terms of the contract as a

whole, which must always be considered, may still affect an issue of standard form contract

interpretation.

[35] Approached in this manner, the question of whether there are factual circumstances of

contract formation specific to the contracting parties that are probative of the meaning of contested

Page 14

contractual language is properly understood as key to determining whether the interpretation of

that language is an issue of standard form contract interpretation and, as such, is subject to

appellate review on the correctness standard. That is a different question than whether there are

any surrounding circumstances relevant to the interpretation of a contract as a whole.

[36] In Sattva, Rothstein J. described surrounding circumstances as “knowledge that was or

reasonably ought to have been within the knowledge of both parties at or before the date of

contracting” (at para 58). Where an issue of standard form contract interpretation is engaged, such

circumstances will exist. However, they are, by definition, limited to what was or reasonably ought

to have been known to the parties in all instances where that standard form contract exists. The

proper scope of evidence of surrounding circumstances in relation to these ULPs is very much at

issue in these appeals.

[37] The law relating to these issues is addressed in more detail below.

3.

Precedential Value

[38] It is often said, based on Sattva, that the presumptive standard of review relating to contract

interpretation is palpable and overriding error, as contract interpretation is generally a question of

mixed fact and law. However, this idea speaks most directly to commercial contracts. Standard

form contracts are now pervasive, evermore so in the context of online consumer transactions. For

these latter types of contract, which certainly outnumber commercial ones, the presumptive

standard of appellate review is correctness, as we will explain.

[39] It is our view that the application of the correctness standard of review to issues of standard

form contract interpretation is doctrinally consistent with Sattva. That is so because the principal

factor that indicates whether an issue of contract interpretation gives rise to a question of law is its

precedential value (Canada (Director of Investigation and Research) v Southam Inc., [1997] 1

SCR 748 [Southam]; Housen; Sattva; the majority reasons in Ledcor³; Canada (Attorney General)

v Fontaine, 2017 SCC 47 at para 35, [2017] 2 SCR 205 [Fontaine]; Churchill Falls (Labrador)

³See also the dissenting reasons of Cromwell J. in Ledcor, where he observed that “precedential value” is the critical

issue when determining whether a correctness review is appropriate but also found that this was just a “different way”

of posing the “key question”, which he saw as “the degree of generality” of the legal principle at issue (at para 117),

invoking the Southam spectrum of generality.

Page 15

Corp. v Hydro-Québec, 2018 SCC 46 at para 49, [2018] 3 SCR 101; J.W. v Canada (Attorney

General), 2019 SCC 20 at paras 110–112, [2019] 2 SCR 224; and Trenchard v Westsea

Construction Ltd., 2020 BCCA 152 at paras 41–43, 37 BCLR (6th) 103; see also MSI Methylation

Sciences, Inc. v Quark Venture Inc., 2019 BCCA 448 at paras 64–68, 31 BCLR (6th) 264).

[40] On one gauge, the precedential value of an interpretation is related to the repeated use of

the contract language in question. We use the example of a standard form real estate contract, as

was at issue in Vallieres v Vozniak, 2014 ABCA 290, 377 DLR (4th) 80 [Vozniak], where the bulk

of the clauses are identical under each contract, underscoring the precedent-setting nature of their

interpretation.

[41] In contextual terms, even though in a standard form, each contract for the sale of real estate

would necessarily contain unique or uncommon, and possibly handwritten, clauses—e.g., “the

drapes stay but the dishwasher is excluded”—the interpretation of which has no precedential value.

The mutual intention of the parties as to whether drapes includes curtains and blinds in the context

of that contract is better gleaned from the circumstances surrounding contract formation. Such a

question is, for the reasons explained in Sattva, a question of mixed fact and law. Whereas, the

interpretation of a standard form clause in that same contract is a question of law precisely because

how it is interpreted has value to multiple other users of the same—and, potentially, other—

standard form contracts. On this gauge, the precedential value of an interpretation lies in the

potential for multiple, subsequent uses of the same contract language by different or even the same

parties.

[42] On a related measure, the precedential value of an interpretation lies in its importance as

law. Precedential value is a normative term that invokes a number of legal principles. These

principles are themselves expressions or aspects of the rule of law. Here, we speak of principles

such as stare decisis as it manifests under the objectives of attaining consistency in the application

of the law, certainty and predictability of legal results, judicial accountability, and justified

decision-making. These and other aspects of the rule of law underpin Rothstein J.’s analysis of the

standards of review in Sattva and that of Wagner J. in Ledcor (see also Southam and Housen).

[43] The Supreme Court has ruled that where an issue of contract interpretation is more akin to

a “dispute…over a general proposition that might qualify as a principle of law” (Southam at

Page 16

para 37) or over the “correct legal test” (Ledcor at para 43) than it is to “a very particular set of

circumstances that is not apt to be of much interest to judges and lawyers in the future” (Southam

at para 37; and Ledcor at para 48) the interpretation of the contract language at issue is of general

importance to the law. Where an issue of interpretation transcends the four corners of the dispute

between the parties to it, as Cromwell J. observed in Ledcor (at para 117), the interpretation has

precedential value.

[44] Where an issue of standard form contract interpretation has been decided, certainty in the

law and consistency in its application should be central objectives for every subsequent

interpreting court. The prior interpretation is the law relating to that issue. It would be untenable

if this law differed when different courts considered the same issue in subsequent matters (Vozniak

at para 13; see also Canadian Imperial Bank of Commerce v Urbancorp (Leslieville) Developments

Inc., 2020 ONCA 449 at para 27). Consistency in the law is advanced by appellate review of such

an interpretation for its correctness (Ledcor at para 39), within the framework of stare decisis and

comity.

[45] Justice Rothstein suggested in Sattva that “extricable” questions of law would arise rarely

in the context of contract interpretation (at para 55). However, as Wagner J. observed in Ledcor,

Rothstein J. was not speaking about all types of contracts when he made that remark. He was

speaking about the uniqueness of a negotiated commercial contract where a meaningful factual

matrix exists to assist with its interpretation, which, as a category, does not cover the full breadth

of the contracts courts are asked to interpret.

[46] As appellate judges, we find the word extricable guides the determination of the

appropriate standard of review. It tells us to look for a sometimes elusive bright line that

demarcates pure questions of law from questions of mixed fact and law. Notwithstanding

Rothstein J.’s cautious view, the post-Sattva jurisprudence reflects the fact that appellate courts

have found questions of law to have arisen in the review of contract interpretation where the lower

court had, for example:

(a)

read a term in a contract in isolation or otherwise failed to read the contract as a

whole (1298417 Ontario Ltd. v Lakeshore (Town), 2014 ONCA 802 at para 7, 122

OR (3d) 401, leave to appeal to SCC refused, 2015 CanLII 38344 [Lakeshore

Page 17

(Town)]; Richcraft Homes Ltd. v Urbandale Corporation, 2016 ONCA 622 at para

69, 406 DLR (4th) 507 [Richcraft Homes]; Whirlpool Canada Co. v Chavila

Holdings Limited, 2017 ONCA 81 at para 72, 134 OR (3d) 161; 911502 Alberta

Ltd. v Elephant Enterprises Inc., 2014 ABCA 437 at para 12, 588 AR 296 [Elephant

Enterprises]; Directcash ATM Management Partnership v Maurice’s Gas &

Convenience Inc., 2015 NBCA 36 at para 23, 437 NBR (2d) 292 [Directcash]; and

Amberber v IBM Canada Ltd., 2018 ONCA 571 at paras 59–64, 424 DLR (4th) 169

[Amberber]);

(b)

failed to consider a material part of the contract (Havenlee Farms Inc. v HZPC

Americas, 2017 PECA 20 at paras 35–36 [Havenlee Farms]; and Sanofi Pasteur

Limited v UPS SCS, Inc., 2015 ONCA 88 at para 37, 382 DLR (4th) 54);

(c)

(d)

adopted an interpretation that rendered meaningless a provision of the contract

(Richcraft Homes at para 69);

failed to give effect to important words in the contract (Thunder Bay (City) v

Canadian National Railway Company, 2018 ONCA 517 at paras 46 and 60, 424

DLR (4th) 588, leave to appeal to SCC refused, 2019 CanLII 23877 [Thunder Bay

(City)]; Jesan Real Estate Ltd. v Doyle, 2020 ONCA 714 at para 35; and Fuller v

Aphria Inc., 2020 ONCA 403 at para 50);

(e)

failed to consider the factual matrix (IFP Technologies (Canada) Inc. v EnCana

Midstream and Marketing, 2017 ABCA 157 at para 58, [2017] 12 WWR 261, leave

to appeal to SCC refused, 2018 CanLII 28111 [IFP Technologies], citing British

Columbia (Minister of Technology Innovation and Citizens’ Services) v Columbus

Real Estate Inc., 2016 BCCA 283 at paras 40 and 51, 402 DLR (4th) 117; and

Starrcoll Inc. v 2281927 Ontario Ltd., 2016 ONCA 275 at paras 16–17, 68 RPR

(5th) 173); or failed to consider a material part of a relevant factual matrix (Jeffrie

v Hendriksen, 2015 NSCA 49 at para 28, 360 NSR (2d) 65 [Jeffrie]; and Puri

Consulting Limited v Kim Orr Barristers PC, 2015 ONCA 727 at paras 18 and 33,

128 OR (3d) 14 [Puri Consulting]);

Page 18

(f)

failed to recognise that a legal term of art has a certain meaning at law (IFP

Technologies at para 62, citing Sattva at para 53; and Deslaurier Custom Cabinets

Inc. v 1728106 Ontario Inc., 2017 ONCA 293 at paras 65–68, 135 OR (3d) 241);

(g)

(h)

strained to create ambiguity where none existed (Amberber at paras 63 and 65);

allowed the factual matrix to overwhelm the text of the contract (Kilitzoglou v Curé,

2018 ONCA 891 at para 41, 143 OR (3d) 385 [Kilitzoglou]; Havenlee Farms at

paras 35–36; and British Columbia (Ministry of Forests) v Teal Cedar Products

Ltd., 2015 BCCA 263 at para 57, 386 DLR (4th) 40 [Teal Cedar CA], but, in Teal

Cedar Products Ltd. v British Columbia, 2017 SCC 32 at para 4, [2017] 1 SCR 688

[Teal Cedar SCC], Gascon J. for the majority held:

Second, there is a question of contractual interpretation: whether the

arbitrator let the factual matrix overwhelm the words of the contract when

he interpreted an amended settlement agreement between the parties in

light of the factual matrix of their failed negotiations. This question may

be formulated in two ways: (1) whether the arbitrator allocated excessive

weight to the factual matrix; or (2) whether the arbitrator’s interpretation

of the factual matrix was isolated from the words of the contract. The

former formulation is a question of mixed fact and law and thus falls

outside the scope of appellate review permitted under the Arbitration Act.

The latter formulation, while it raises a question of law, lacks arguable

merit in this case because the arbitrator’s interpretation was clearly

anchored in the words of the contract, which he interpreted in light of the

factual matrix. Without arguable merit, this formulation also fails to confer

appellate review jurisdiction under the Arbitration Act.

(i)

(j)

(k)

(l)

based an interpretation on the subsequent conduct of the parties even though the

text of the contract was not ambiguous (Thunder Bay (City) at paras 61 and 65);

relied on subsequent conduct evidence to create an ambiguity (Wade v Duck, 2018

BCCA 176 at para 32, 422 DLR (4th) 423);

relied on subsequently arising circumstances to construe a contract (Kilitzoglou at

para 40);

relied on its own assessment of what was “fair or reasonable”, rather than giving

the words of a contract their ordinary and grammatical meaning in the context of

the contract as a whole (Kilitzoglou at paras 57–58);

Page 19

(m)

(n)

failed to correctly apply contract law (Elephant Enterprises at para 10; Jeffrie at

para 26; and Moulton Contracting Ltd. v British Columbia, 2015 BCCA 89 at

paras 5 and 78, 381 DLR (4th) 263);

resorted to the doctrine of contra proferentem too early in the interpretive process

(Puri Consulting at para 33; and Pepin v Telecommunications Workers Union, 2017

BCCA 194 at para 6, 97 BCLR (5th) 345 [Pepin]), or without first finding an

ambiguity (Directcash at paras 25–26), or without resolving how the doctrine was

applicable where both parties had had a meaningful opportunity to negotiate the

contract (Pepin at para 7); and

(o)

breached the rules of natural justice by finding an implied term where that issue

had not been joined between the parties and was not the subject of submissions

(Servus Credit Union Ltd. v Crelogix Acceptance Corporation, 2020 ABCA 220,

[2020] 10 WWR 67).

[47] Quite apart from the foregoing specific errors of law, the general application of the

correctness standard in appeals involving issues of standard form contract interpretation does not

result from the identification of an extricable question of law. In Ledcor, Wagner J. described the

precedential value of standard form contracts as being an exception to the Court’s holding in Sattva

that the presumptive standard of review is palpable and overriding error (Ledcor at paras 33–45).

As we see it, it is better described as the application in a different context of the principles that

underpin that holding. More specifically, Wagner J. affirmed that the interpretation of a standard

form contract has precedential value where “there is no meaningful factual matrix that is specific

to the particular parties to assist the interpretation process” (Ledcor at paras 4 and 24, emphasis

added).

[48] In this way, Wagner J.’s reasons reconcile the holding in Sattva with the precedential value

of the interpretation of a standard form contract by explaining that, where such an interpretation

has precedential value, it has a sufficient degree of generality on the “spectrum of particularity”

described in Housen (at para 28) to be concerned with a general proposition. As the Court there

remarked, this issue was earlier addressed by Iacobucci J. in Southam:

Page 20

[37]

… [T]he matrices of facts at issue in some cases are so particular, indeed so unique,

that decisions about whether they satisfy legal tests do not have any great precedential

value. If a court were to decide that driving at a certain speed on a certain road under certain

conditions was negligent, its decision would not have any great value as a precedent. In

short, as the level of generality of the challenged proposition approaches utter particularity,

the matter approaches pure application, and hence draws nigh to being an unqualified

question of mixed law and fact. See R. P. Kerans, Standards of Review Employed by

Appellate Courts (1994), at pp. 103-108. Of course, it is not easy to say precisely where

the line should be drawn; though in most cases it should be sufficiently clear whether the

dispute is over a general proposition that might qualify as a principle of law or over a very

particular set of circumstances that is not apt to be of much interest to judges and lawyers

in the future.

[49] Cast in Southam’s terms, the answer to an issue of contract interpretation is neither

particular nor unique if it involves the same issue of interpretation and the same or substantially

the same contract language as is used in other contracts and there is no meaningful factual matrix

specific to the parties that is relevant to the issue. Rather, the answer is a general rule or general

proposition on the spectrum of particularity and, therefore, the issue of interpretation falls on the

question of law side of that spectrum. Viewed in this way, the standard of appellate review relating

to issues of standard form contract interpretation—which arises only when the foregoing

conditions have been met—is not an exception to the rule that the palpable and overriding error

standard is generally applicable but is an application of the principles espoused in Southam,

Housen, Sattva and Ledcor.

[50] Justice Rothstein himself drew on Southam and Housen to observe that the precedential

value of an interpretation often dictates whether the issue of interpretation gives rise to a question

of law (Sattva):

[50]

…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.

[51]

The purpose of the distinction between questions of law and those of mixed fact

and law further supports this conclusion. One central purpose of drawing a distinction

between questions of law and those of mixed fact and law is to limit the intervention of

appellate courts to cases where the results can be expected to have an impact beyond the

parties to the particular dispute. It reflects the role of courts of appeal in ensuring the

consistency of the law, rather than in providing a new forum for parties to continue their

private litigation. For this reason, Southam identified the degree of generality (or

“precedential value”) as the key difference between a question of law and a question of

mixed fact and law. The more narrow the rule, the less useful will be the intervention of

the court of appeal:

If a court were to decide that driving at a certain speed on a certain road

under certain conditions was negligent, its decision would not have any

Page 21

great value as a precedent. In short, as the level of generality of the

challenged proposition approaches utter particularity, the matter

approaches pure application, and hence draws nigh to being an unqualified

question of mixed law and fact. See R. P. Kerans, Standards of Review

Employed by Appellate Courts (1994), at pp. 103-108. Of course, it is not

easy to say precisely where the line should be drawn; though in most cases

it should be sufficiently clear whether the dispute is over a general

proposition that might qualify as a principle of law or over a very

particular set of circumstances that is not apt to be of much interest to

judges and lawyers in the future. [para. 37]

[52]

Similarly, this Court in Housen found that deference to fact-finders promoted the

goals of limiting the number, length, and cost of appeals, and of promoting the autonomy

and integrity of trial proceedings (paras. 16-17). These principles also weigh in favour of

deference to first instance decision-makers on points of contractual interpretation. The

legal obligations arising from a contract are, in most cases, limited to the interest of the

particular parties. Given that our legal system leaves broad scope to tribunals of first

instance to resolve issues of limited application, this supports treating contractual

interpretation as a question of mixed fact and law.

(Emphasis added)

[51] As we read the decision of the majority in Ledcor on this point, Wagner J. affirmed this

reasoning that the precedential value of an interpretation has a determinative effect on the nature

of the question arising at both the interpretive stage and the appellate stage. Justice Wagner also

remarked that the fact a contract is a standard form contract and the fact there is no relevant factual

matrix specific to the parties similarly indicate its interpretation may give rise to a question of law

(at paras 4 and 24).

[52] As we have explained, we would put the matter differently but to the same end. A contract

(or issue) is a standard form contract (or an issue of standard form contract interpretation) for the

purposes of appellate review only if three conditions are met. First, there must be an identical or a

substantially identical form of contract language capable of standardised use by multiple, different

parties. In the overwhelming majority of cases, that means the standard form contractual language

at issue will have been entirely reduced to writing. The assertion of an oral, handwritten or typed

term or condition or other deviation from standard form text relevant to the issue of interpretation

in question connotes the existence of a meaningful factual matrix specific to the contracting parties,

such that the issue of interpretation is a question of mixed fact and law—i.e., being unique, it lacks

precedential value (for example, see Albo v The Winnipeg Free Press, 2020 MBCA 50 at para 18,

[2020] 6 WWR 187).

Page 22

[53] Second, there must be no factual matrix that is specific to the parties to the contract and

that is probative of the issue of contract interpretation. In the McCamus Text, the author describes

standard form contracts as follows (at 202–203):

In these kinds of situations, the document put forward will typically constitute a standard

printed form that the party proffering the document invariably uses when entering

transactions of this kind. The form will often be offered on a “take it or leave it” basis. In

the typical case, the other party, then, will have no choice but either to agree to the terms

of the standard form or to decline to enter the transaction altogether. Standard form

agreements are a pervasive and indispensable feature of modern commercial life. It is

simply not feasible to negotiate, in any meaningful sense, the terms of many of the

transactions entered into in the course of daily life. …

See also MacDonald v Chicago Title Insurance Company of Canada, 2015 ONCA 842 at para 33,

127 OR (3d) 663; and Corydon Village Mall Ltd. v TEL Management Inc., 2017 MBCA 8 at

paras 30–48, 407 DLR (4th) 263.

[54] Third, the standard form contract must be one that has been or will be repeatedly entered

into.

[55] These three factors are characteristic of a contract, the interpretation of which will have

precedential value. The interpretation of a standard form contract or of a standard form clause is

always a question of law because the answer has precedential value. That is so because the law

and the facts are the same each time the standard form contract language is interpreted. The

interpretation is, accordingly, a finding of law that is subject to appellate review for its correctness.

[56] This analytical framework is consistent with the reasoning in Ledcor. There, Wagner J.

concluded that correctness was the applicable appellate standard in that case based on these three

factors; that is, the appeal involved the interpretation of a standard form contract, the interpretation

was of precedential value, and there was no meaningful factual matrix specific to the parties to

assist the interpretation process. It is also consistent with the following reasoning in Ledcor, which

suggests that appeals relating to aspects of standard form contracts may nonetheless give rise to

mixed questions of fact and law:

[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

Page 23

may be other cases where deferential review remains appropriate. As Iacobucci J.

recognized in Southam, 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).

[57] On first impression, the foregoing passage appears to differ from the framework that we

propose and that is reflected at paragraph 46 of Ledcor. There is, however, no difference in

substance. Rather, the seeming difference results from the fact that, in the foregoing passage,

Wagner J. refers to “standard form contracts” as including contracts that may be in or based on a

standard form but where there is also a factual framework relating to the parties to assist with

interpretation or where there have been modifications to the contract. In our respectful opinion,

referring to such contracts as “standard form contracts” for purposes of interpretation and

determining the standard of review may be the source of some of the confusion referred to in the

academic commentary. In our view, it is both preferable and more accurate to use the term

“standard form contracts” in reference only to those contracts that, in their entirety, meet all three

conditions described above. More specifically, it is preferable and more accurate to address

contract interpretation on an issue-by-issue basis to determine whether each issue is an issue of

standard form contract interpretation. Approached in this manner, a contract or contractual

provision that has been modified or that is subject to interpretation based on a meaningful factual

matrix specific to the parties to it is not a standard form contract at all and does not involve an

issue of standard form contract interpretation.

[58] We would emphasize that, for the first judge who decides an issue of standard form contract

interpretation, the classification of such an issue as a question of law for standard of review

purposes is irrelevant. The usual process of contract interpretation applies. The interpreting judge

is obliged to apply the principles of contract interpretation to the facts. The facts include the written

contract and the surrounding circumstances, which would be limited in the manner described

above. The interpretive process differs only where the issue of standard form contract

interpretation has already been decided by another court. In that case, the earlier interpretation

would constitute law relating to that issue. In such a case, comity and stare decisis would come

into play in the usual way.

Page 24

[59] We would finally note that we have concluded that the three factors that signal the existence

of an issue of standard form contract interpretation are present in relation to the issues of

interpretation raised in these appeals. Each of the appeals involves the interpretation of a contract

that uses standard form language. The interpretation of each ULP is, at the very least, of

precedential value to the insurer and insureds who have contracted and may in the future contract

under the same or a similar standard form ULP. There is no suggestion that there is a meaningful

factual matrix specific to the parties that would assist with the interpretation of any of the issues

of contract interpretation before the Court. Our reasons for these conclusions are explained below.

C.

In the Exercise of Judicial Discretion

[60] The standard of review of an exercise of judicial discretion is deferential, meaning an

appellate court is not entitled to substitute its own discretion for that of the judge vested with the

authority merely because it would have exercised the authority differently (Friends of the Oldman

River Society v Canada (Minister of Transport), [1992] 1 SCR 3 at 76–77).

[61] The Court’s decision in Rimmer v Adshead, 2002 SKCA 12 at para 58, [2002] 4 WWR 119

[Rimmer], is the most commonly referenced case in Saskatchewan for the standard of appellate

review of the discretionary decisions of judges. Building on the principles that underpin the rule

of law and recognising that no discretionary power is completely unfettered or unlimited,

Cameron J.A. said, “the powers in issue are discretionary and therefore fall to be exercised as the

judge vested with them thinks fit, having regard for such criteria as bear upon their proper

exercise”. The criteria that bear upon the proper exercise of judicial discretion “are legal criteria,

and their definition as well as a failure to apply them or a misapplication of them raise questions

of law” (British Columbia (Minister of Forests) v Okanagan Indian Band, 2003 SCC 71 at para 43,

[2003] 3 SCR 371 [Okanagan]). As such, these questions of law are subject to appellate review

on the standard of correctness (Housen at paras 8–9 and 33).

[62] An appellate court may also intervene where a judge who is vested with a discretionary

authority has failed to give any or sufficient weight to a consideration that is relevant to its exercise

(Penner v Niagara (Regional Police Services Board), 2013 SCC 19 at para 27, [2013] 2 SCR 125;

MiningWatch Canada v Canada (Fisheries and Oceans), 2010 SCC 2 at para 43, [2010] 1 SCR 6;

Strom v Saskatchewan Registered Nurses’ Association, 2020 SKCA 112 at para 60, [2020] 12

Page 25

WWR 396 [Strom]; Kot v Kot, 2021 SKCA 4 at paras 15–19 [Kot]; and Fontaine at para 36) or

where the judge has made a palpable and overriding error when assessing the evidence (Okanagan

at para 43; Strom at paras 60–63; Rimmer at para 58 refers to such errors as “disregard [of] a

material matter of fact”).

[63] The Court recently summarised the foregoing in Kot:

[20]

In summary, these cases confirm that appellate intervention in a discretionary

decision is appropriate where the judge made a palpable and overriding error in their

assessment of the facts, including as a result of misapprehending or failing to consider

material evidence. Appellate intervention is also appropriate where the judge failed to

correctly identify the legal criteria which governed the exercise of their discretion or

misapplied those criteria, thereby committing an error of law. Such errors may include a

failure to give any or sufficient weight to a relevant consideration.

D.

In Evidentiary Matters

[64] In each appeal and cross-appeal, the parties have raised questions as to the admissibility of

evidence, the relevance of evidence, or the application of exclusionary rules of evidence. Although

the standard of review relating to the admission of evidence depends on the nature of the question,

questions of the nature raised in these matters are typically questions of law and, therefore, would

be subject to the standard of correctness: Southam at para 41; Hess v Thomas Estate, 2019 SKCA

26 at para 30, 433 DLR (4th) 60; and Donald J.M. Brown, Civil Appeals, loose-leaf (Rel 2020-4)

vol 2 (Toronto: Thomson Reuters, 2019) at para 12:5320. However, we find no need to address

the standard of review relating to these evidentiary issues any further. Given our conclusions as to

the proper scope of admissible evidence about the circumstances surrounding contract formation

in relation to issues of standard form contract interpretation, the evidence proffered by the parties

is by and large irrelevant and inadmissible.

V.

THE SATTVA APPROACH

A. Consensus Ad Idem

[65] In the language of appellate review, these appeals are about determining whether the Judge

erred in his interpretations of the ULPs. Cast in terms of the standard of review, the question is

whether the Judge correctly identified the applicable law—which, in these matters, is limited to

the principles of contract interpretation—and correctly applied the law to the facts.

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[66] To answer those questions, we must first identify the Judge’s target, which may be simply

done. The goal of all contract interpretation is to ascertain consensus ad idem. Consensus ad

idem—a phrase that, like many Latin phrases, has largely fallen into disuse by Canadian courts—

is the “meeting of the minds” between or among the parties to a contract. Consensus ad idem arises

when all parties understand and accept the contractual commitments each party has made to the

others (Jedfro Investments (U.S.A.) Ltd. v Jacyk, 2007 SCC 55 at para 17, [2017] 3 SCR 679, citing

with approval Paal Wilson & Co. A/S v Partenreederei Hannah Blumenthal (1982), [1983] 1 All

ER 34 (HL) [Paal Wilson]). In Paal Wilson, Lord Diplock wrote (at 48–49):

… To create a contract by exchange of promises between two parties where the promise of

each party constitutes the consideration for the promise of the other what is necessary is

that the intention of each as it has been communicated to and understood by the other (even

though that which has been communicated does not represent the actual state of mind of

the communicator) should coincide. That is what English lawyers mean when they resort

to the latin phrase consensus ad idem and the words that I have italicised are essential to

the concept of consensus ad idem, the lack of which prevents the formation of a binding

contract in English law.

(Emphasis in original)

[67] There can be no enforceable contract without consensus ad idem. The concept it expresses

underpins the fundamental requirements of contract formation, namely, offer, acceptance,

consideration and communication. It holds that every party to an enforceable contract must have

the same understanding as to the content of each of its fundamental requirements. For an

enforceable contract to come into existence, the parties must reach consensus ad idem as to what

has been offered and accepted and as to the consideration therefor. This can only occur where

those promises have been communicated to, and understood by, all of the parties. Consensus ad

idem is essential to contract formation and enforcement and it is, therefore, the object of contract

interpretation.

[68] In the appellate jurisprudence, the phrase consensus ad idem is now generally described in

terms of the intentions or true intentions or mutual intentions or objective intentions of the parties

at the time they entered into the contract (Teal Cedar SCC at para 57; Ledcor at paras 33 and 38;

Sattva at paras 55 and 57; Jesuit Fathers of Upper Canada v Guardian Insurance Co. of Canada,

2006 SCC 21 at para 27, [2006] 1 SCR 744; Eli Lilly & Co. v Novopharm Ltd., [1998] 2 SCR 129

at paras 54 and 56 [Eli Lilly]; Consolidated-Bathurst Export Ltd. v Mutual Boiler and Machinery

Insurance Co., [1980] 1 SCR 888 at 901 [Consolidated-Bathurst]; Gilchrist v Western Star Trucks

Page 27

Inc., 2000 BCCA 70 at para 17, 73 BCLR (3d) 102 [Gilchrist]; Davidson v Allelix Inc. (1991), 86

DLR (4th) 542 (Ont CA) at 547; Swan Text at 259; Hall Text at 9–13; McCamus Text at 801–803;

Gerald H.L. Fridman, The Law of Contract in Canada, 6th ed (Toronto: Carswell, 2011) at 13–17

[Fridman Text]; and S.M. Waddams, The Law of Contracts, 7th ed (Toronto: Thomson Reuters,

2017) at 97–103).

[69] However, and this must be kept front of mind at all times, the issue is not what the parties

subjectively understood or intended, or later came to think the agreement was (see, for example,

Halifax (Regional Municipality) v Canadian National Railway Company, 2014 NSCA 104 at

paras 57 and 63, 353 NSR (2d) 18; see also Eli-Lilly at para 54). Unlike statutes⁴or constitutional

documents⁵, the meaning of a contract is fixed at the time of its formation—it does not come to

mean something else over time. As the learned author states in the Hall Text (at 50–51):

It is a fundamental precept of the law of contractual interpretation that the exercise is

objective rather than subjective. “The goal in interpreting an agreement is to discover,

objectively, the parties’ intention at the time the contract was made.” [Emphasis added.]

The objective approach applies to both the words of the contract and their context.

Therefore, 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. “Bearing in mind the relevant background, the

purpose of the document, and considering the entirety of the document, what would the

parties to the document reasonably have understood the contested words to mean?”

[Emphasis added.] Put another way, “[i]n interpreting a contract, what is relevant is the

parties’ outward manifestations…”.

…

The objective nature of the endeavour affects the entire interpretive exercise. It defines the

perspective for interpretation—the words in their context mean not what the parties

subjectively believe them to mean but rather what a reasonable third party would take them

to mean—and renders evidence of subjective intention absolutely inadmissible.

(Footnotes omitted; emphasis in original, italics emphasis added)

[70] Similarly, in the Fridman Text, the learned professor states (at 15–16):

… The law is concerned not with the parties’ intentions but with their manifested

intentions. It is not what an individual party believed or understood was the meaning of

what the other party said or did that is the criterion of agreement; it is whether a reasonable

man in the situation of that party would have believed and understood that the other party

was consenting to the identical terms. As Fraser C.J.A. said in Ron Ghitter Property

Consultants Ltd. v. Beaver Lumber Co. [(2003), 17 Alta LR (4th) 243 at 249 (CA)]:

⁴See R v Perka, [1984] 2 SCR 232 at 265.

⁵See Reference re Same-Sex Marriage, 2004 SCC 79 at para 22, [2004] 3 SCR 698, and Edwards v Attorney-General

for Canada (1929), [1930] AC 124 (PC).

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…the parties will be found to have reached a meeting of the minds, in other

words be ad idem, where it is clear to the objective reasonable bystander,

in light of all the material facts, that the parties intended to contract and

the essential terms of that contract can be determined with a reasonable

degree of certainty.

Sometimes it is a simple matter to decide what the parties have manifested to each other,

and consequently, whether they have agreed, and if so, upon what. This is especially true

where a document containing their agreement has been prepared and signed by the parties.

If the plain wording of the document reveals a clear and unambiguous intent, it is not

necessary to go further. Indeed, once that has been done, it may not be possible to have

recourse outside such document, either to other written material or to parol evidence from

the parties or anyone else, in order to explain, or otherwise clarify what is contained in the

document.

(Footnotes omitted, emphasis added)

[71] Regardless of nomenclature, “the role of courts in interpreting contracts is to give effect to

the bargain by which the parties intended to be bound”: Ruth Sullivan, Contract Interpretation in

Practice and Theory (2000), 13 SCLR (2d) 369 (QL) at para 24. As such, when asked to interpret

a contract, the court’s principal objectives are to determine whether there was consensus ad idem

at the time the parties purportedly made their contract and, if so, what it entailed.

[72] In every case, contract interpretation begins with the words of the contract, whether

reduced to writing or not. To give meaningful effect to consensus ad idem, the interpretive process

must remain firmly grounded in the language chosen by the parties to govern their relationship.

Contextual factors are used to assist with achieving an accurate interpretation of the contract.

Contextual assistance is gleaned from the contract itself and from the circumstances surrounding

its formation, i.e., the factual matrix (Prenn v Simmonds, [1971] 3 All ER 237 (HL) at 239–240

[Prenn]; and Sattva). However, because contract interpretation involves the examination of both

text and context, interpretive friction may arise between the ordinary meaning of the text of a

contract and the meaning suggested by the factual matrix.

[73] The first principle of contract interpretation is that the parties to a contract are presumed to

have intended what the text of the contract actually says (Eli Lilly at para 56; Heritage Capital at

para 47; Fischbach & Moore of Canada Ltd. v Noranda Mines Limited, Potash Division (1971),

19 DLR (3d) 329 (Sask CA); UMA/B&V Ltd. v SaskPower International Inc., 2007 SKCA 40 at

para 26, [2007] 6 WWR 277, leave to appeal to SCC refused, 2007 CanLII 40508; Salah v

Timothy’s Coffees of the World Inc., 2010 ONCA 673 at para 16, 268 OAC 279; Goodlife Fitness

Page 29

Centres Inc. v Rock Developments Inc., 2019 ONCA 58 at para 15; Fridman Text at 436–438; and

Hugh G. Beale, ed, Chitty on Contracts, 31st ed, vol 1 (London: Sweet and Maxwell, 2012) at

932). This is the cardinal presumption of contract interpretation and it places the written agreement

of the parties at the core of the interpretive process.

[74] Under a strict textualist approach, the words of the contract is where interpretation starts

and ends. Strict textualism is not the law in Canada. The proper approach to contract interpretation

is that outlined by Rothstein J. in Sattva. It is our view that the Sattva approach—with the caveat

set out below—establishes the general framework for the interpretation of all contracts under

Canadian law.⁶

[75] Under the approach outlined in Sattva, this cardinal presumption remains and the

interpreting court also looks outside the text of the contract to objective evidence of the mutual

intention of the parties to assist with the interpretation of the text. This is the approach consistently

taken by Canadian courts (see, for examples, Sattva at para 57; Eli Lilly at paras 54–56⁷; BG Checo

International Ltd. v British Columbia Hydro and Power Authority, [1993] 1 SCR 12 at 23–24 [BG

Checo]; Pacific National Investments Ltd. v Victoria (City), 2004 SCC 75 at para 31, [2004] 3

SCR 575; Spencer Health Network Inc. v Co-operators Life Insurance Company, 2018 SKQB 244

at paras 73–79; Swan Text at 259; Hall Text at 9–13; and McCamus Text at 805–808). We note

that this approach was most recently affirmed by the Supreme Court in the context of

post-incorporation contracts in Owners, Strata Plan LMS 3905 v Crystal Square Parking Corp.,

2020 SCC 29, 450 DLR (4th) 105, where Côté J. said:

[37]

To conclude, the applicable test for finding that a post-incorporation contract exists

is the same as the one for finding that any other agreement exists at common law. The test

is objective, and the offer, acceptance, consideration and terms may be inferred from the

parties’ conduct and from the surrounding circumstances.

⁶In the United Kingdom, all contracts “must be interpreted objectively by asking what a reasonable person, with all

the background knowledge which would reasonably have been available to the parties when they entered the contract,

would have understood the language of the contract to mean” (The Financial Conduct Authority and others v Arch

Insurance (UK) Ltd. and others, [2021] UKSC 1 at para 47; see also: Wood v Capita Insurance Services, [2017] UKSC

24).

⁷The decision in Eli-Lilly states the current law on the inadmissibility of extrinsic evidence of intent, but the holding

in Eli-Lilly to the effect that a factual matrix is not relevant unless the court first finds ambiguity in the contract text

has been overruled by Tercon Contractors Ltd. v British Columbia (Transportation and Highways), 2010 SCC 4 at

paras 65–66, [2010] 1 SCR 69 [Tercon], and Sattva.

Page 30

[76] Finally, we are aware that, in Ledcor, Wagner J. affirmed the existence of and applied the

“governing principles of interpretation applicable to insurance policies…summarized by

Rothstein J. in Progressive Homes” (at para 49). Similarly, we recognise that there are special

principles for interpreting certain other categories of contract, including employment contracts,

performance bonds, guarantees and releases, etc. If we are correct in holding that there is a single,

general framework for the interpretation of all contracts, these specialised principles, including

those summarised in Progressive Homes Ltd. v Lombard General Insurance Co. of Canada, 2010

SCC 33, [2010] 2 SCR 245 [Progressive Homes], which received great attention from the parties

in these matters, must be reconciled with the dicta in Sattva. It is our view such a reconciliation is

possible, as we agree with the statement in the Hall Text that apparent exceptions to Sattva can

generally be explained as resulting from a principled application of the Sattva approach in the

context of the type of contract in question.

[77] However, it is not necessary to deal further with the Progressive Homes framework

because, as we have noted above and will more fully explain below, the issues of standard form

contract interpretation before us in these matters do not engage with those principles and, in

particular, do not relate to a commercial insurance contract of the kind considered in Ledcor.

B.

The Factual Matrix

[78] In addition to the contested aspects of the text of the contract, the contract as a whole,

ordinary dictionaries, style guides and the rules of grammar (which are interpretive aids under a

textualist approach), the interpreting court must examine the relevant factual matrix, i.e., the

circumstances surrounding contract formation. When describing this aspect of the analysis in

Sattva, Rothstein J. wrote:

[47]

…[T]he 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:

Page 31

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, 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]

[79] See also Prenn, where Lord Wilberforce wrote (at 239–240):

In order for the agreement of 6th July 1960 to be understood, it must be placed in its

context. The time has long passed when agreements, even those under seal, were isolated

from the matrix of facts in which they were set and interpreted purely on internal linguistic

considerations. ...We must ...enquire beyond the language and see what the circumstances

were with reference to which the words were used, and the object, appearing from those

circumstances, which the person using them had in view. …

[80] The House of Lords more recently addressed the breadth of evidence relevant to contract

interpretation in Investors Compensation Scheme Ltd. v West Bromwich Building Society, [1998]

1 WLR 896 (HL) at 913 [Investors Compensation], where Lord Hoffman described the factual

matrix as including “absolutely anything which would have affected the way in which the language

of the document would have been understood by a reasonable man” (at 913). However,

Lord Hoffman also confirmed that “absolutely anything” does not include evidence of previous

negotiations between the parties and evidence of the parties’ subjective intentions. Critically, he

observed that background facts must have been reasonably available to all parties at the time of

contracting (at 913).

[81] Drawing on this, Rothstein J. described in Sattva similar conceptual limits on the breadth

of relevant surrounding circumstances:

[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, at paras. 66 and 70), that is, knowledge that was or

Page 32

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.

[82] In short, extrinsic evidence of the circumstances surrounding contract formation is relevant

and material if it assists with or is probative of the accurate interpretation of contested contract

text. That evidence may be particularly useful where the text of the contract appears to be unclear,

ambiguous, or fails to deal expressly with the matter in dispute. Nonetheless, and in keeping with

the cardinal presumption, the interpreting court’s goal is always to discern and give effect to the

meaning of the disputed text. In Sattva, Rothstein J. put it in these terms:

[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, 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).

(Emphasis added)

[83] The Supreme Court has since confirmed these principles and given guidance as to what

type of extrinsic evidence is generally relevant and material:

(a)

The factual matrix “assists in discerning the meaning of the words that the parties

chose to express their agreement; it is not a means by which to change the words

of the contract in a manner that would modify the rights and obligations that the

parties assumed thereunder” (Resolute FP Canada Inc. v Ontario (Attorney

General), 2019 SCC 60 at para 78, 444 DLR (4th) 77, Côté and Brown JJ. (Rowe J.

concurring), citing Hall Text, at 33–34).

(b)

Extrinsic evidence of surrounding circumstance is not to be used “to change or

overrule the meaning of [the] words [of a contract]” (Sattva at para 60).

Page 33

(c)

(d)

The use of a factual matrix “is limited by the legal principle that contractual

interpretation must remain grounded in the text of the contract so as to avoid

effectively creating a new agreement between the parties” (Teal Cedar SCC at

para 63).

“Interpretation of written contractual provisions must be grounded in the text and

read in light of the entire contract” and “[s]urrounding circumstances, including

‘knowledge that was or reasonably ought to have been within the knowledge of

both parties at or before the date of contracting’, may be considered in interpreting

the terms of a contract, although they may not overwhelm the contract’s express

words” (Fontaine at para 37).

(e)

(f)

The “purpose behind” a contract may inform the interpreting court of the parties’

reasonable expectations as to the meaning of a contested term (Ledcor at para 66).

“Evidence of one party’s subjective intention therefore ‘has no independent place’

when considering the circumstances surrounding the formation of a contract” (S.A.

v Metro Vancouver Housing Corp., 2019 SCC 4 at para 30, [2019] 1 SCR 99, citing

Eli Lilly at para 54).

(g)

The nature of the evidence upon which an interpreting court may rely consists “only

of objective evidence of the background facts at the time of the execution of the

contract” (Sattva at para 58, citing King v Operating Engineers Training Institute

of Manitoba Inc., 2011 MBCA 80 at paras 66 and 70, 270 Man R (2d) 63), namely,

“knowledge that was or reasonably ought to have been within the knowledge of

both parties at or before the date of contracting” (Sattva at para 58).⁸

[84] Aggregating this guidance in the most encompassing of terms, relevant extrinsic evidence

will include anything that tends to establish the facts known, or facts that reasonably ought to have

been known, to all parties at or before the date of contracting and that deepens the interpreting

court’s understanding of the mutual and objective intention of the parties as expressed by the words

⁸For the purposes of appellate review, Sattva also stands for the proposition that questions as to whether something

was or ought to have been within the common knowledge of the parties at the time of execution of the contract is a

question of fact (at para 58).

Page 34

of the contract (Sattva at paras 57, 58 and 60). Broadly stated, the proper approach to contract

interpretation involves the determination of consensus ad idem on the basis of the text of the

contract as a whole together with a matrix of extrinsic evidence that objectively manifests what

the parties understood the contested contract text to mean at the time of contract formation.

[85] In Ledcor, Wagner J. also observed that an interpreting court must consider “factors such

as the purpose of the contract, the nature of the relationship it creates, and the market or industry

in which it operates” (at para 31; see also Sattva at para 48). In a commercial context, these three

factors allow an interpreting court to take a more expansive approach to determining the parties’

common intentions in relation to an issue of standard form contract interpretation (Sattva at

para 118; and McCamus Text at 805–808). This has long been the case. In Hillas & Co., Ltd. v

Arcos, Ltd., [1932] All ER 494 (HL) at 503–504, Lord Wright wrote:

… Business men often record the most important agreements in crude and summary

fashion; modes of expression sufficient and clear to them in the course of their business

may appear to those unfamiliar with the business far from complete or precise. It is,

accordingly, the duty of the court to construe such documents fairly and broadly, without

being too astute or subtle in finding defects; but, on the contrary, the court should seek to

apply the old maxim of English law, verba ita sunt intelligenda ut res magis valeat quam

pereat [i.e., “words are to be understood that the object may be carried out and not fail”⁹].

That maxim, however, does not mean that the court is to make a contract for the parties, or

to go outside the words they have used, except in so far as there are appropriate implications

of law, as, for instance, the implication of what is just and reasonable to be ascertained by

the court as matter of machinery where the contractual intention is clear but the contract is

silent on some detail. …

[86] A court has less scope to consider evidence of surrounding circumstances of this kind

where the issue of standard form contract interpretation relates to a consumer contract rather than

a commercial contract. However, as we have indicated above, the fact that an issue before the court

is one of standard form contract interpretation does not mean that no evidence of surrounding

circumstances is admissible in relation to it. A factual matrix may still exist, but it must—given it

is only where there is no meaningful factual matrix specific to the parties that such an issue arises—

be the same for all who use the same standard form contract language to govern their contractual

relationship.

⁹As translated in Canada Square Corp. v Versafood Services Ltd. (1981), 130 DLR (3d) 205 (WL) (Ont CA) at

para 32, and Sherry v CIBC Mortgages Inc., 2016 BCCA 240 at para 61, 88 BCLR (5th) 105.

Page 35

[87] We note, for example, that in the case of a consumer insurance contract, the insured’s

knowledge is taken to be that of the average person applying for insurance and not a person “versed

in the niceties of insurance law” (Sabean at para 13; National Bank of Greece (Canada) v

Katsikonouris, [1990] 2 SCR 1029 at 1043; and Co-operators Life Insurance Co. v Gibbens, 2009

SCC 59 at para 21, [2009] 3 SCR 605 [Gibbens]). Knowledge of that kind, lacking specificity as

it does, will often be of little use in determining the meaning of contested contract language. In the

result, an issue of standard form contract interpretation will often turn entirely on the disputed

contract language, considered in the context of the contract as a whole, or by taking into account

broader societal interests, or under the blunt instrument of contra proferentem (Hall Text at 218–

221). Extrinsic evidence, including as to purpose, relationship and the market or industry, will

often add little or nothing to the analysis.

C.

Legislation and Terms of Art

[88] The parties have raised issues of standard form contract interpretation that the Respondents

submit are informed by legislation and substantive common law. By substantive common law, we

mean common law other than the law of contract interpretation. In particular, the Respondents say

the Court’s interpretation of the word premium or the term payment of premiums, which are used

in each of the ULPs to describe monies paid by the insured to the insurer, must recognise the

statutory definition of premium under The Saskatchewan Insurance Act, RSS 1978, c S-26 [The

Insurance Act, 1978], as well as the meaning courts have attributed to premium in previous cases.

These factors were central to the conclusion reached by the Judge that the word premium is a legal

term of art, meaning an amount paid for insurance.

[89] As noted, issues of contract interpretation may also raise questions as to the effect of statute

law¹⁰or common law on the interpretation of a disputed contract provision. For example, for public

policy reasons, a legislature may have interfered with the freedom to contract by statutorily

imposing contractual terms and conditions on contracting parties.¹¹Legislated rules of contract of

¹⁰See also Fontaine v Canada (Attorney General), 2020 ONCA 688, in respect of the application of court protocols

in the context of the interpretation of a residential school settlement agreement.

¹¹See, for example, The Insurance Act, 2015, ss 8-28, 8-41, 8-95 and 8-166. Pursuant to s. 7-27(1)(n)(i) of The

Insurance Act, 2015, the Lieutenant Governor in Council may make regulations respecting life insurance policies that

provide for “either or both of the form and contents of” a life insurance policy, an application therefor, and an

endorsement or rider thereon, etc. See also Hart Stores Inc. v 3409 Rue Principale Inc., 2020 NBCA 49 at para 45.

Page 36

this or any other kind must be applied when identifying and interpreting the contract or provision

at issue. In such cases, the interpreting court must approach interpretation of the

statutorily-imposed term or condition as a question of law.¹²This factor is not mentioned in Sattva

or Ledcor.

[90] Statutory provisions that fall within this category are those that impose or prohibit

contractual conditions or speak directly to the interpretation of a contract in some other way. In

the latter respect, using Saskatchewan insurance contracts as the example, ss. 8-121(3) and

8-178(3) of The Insurance Act, 2015 each provide: “A designation in favour of the ‘heirs’, ‘next

of kin’ or ‘estate’ of an insured, or the use of words having similar meaning in a designation, is

deemed to be a designation of the personal representative of the insured”. Under these provisions,

the Legislature has expressly fixed the meaning of certain words and phrases when used in a

Saskatchewan insurance contract. An interpreting court must follow that legislated interpretation.

[91] A legislature may also prescribe the circumstances under which a contractual term or

condition is unenforceable, invalid or void. Again, using Saskatchewan insurance contracts as the

example, s. 8-8(9) of The Insurance Act, 2015 states that the “question of materiality in any

contract of insurance is a question of fact”. The provision then goes on to provide that “no

admission, term, condition, stipulation, warranty or proviso to the contrary contained in the

application for insurance or in the policy or in any agreement or document relating to the contract

has any force or validity” (emphasis added).

[92] A legislature may even deem certain evidence inadmissible for the purposes of contract

interpretation, thereby interfering with the interpreting court’s broad discretion on matters of

evidence and supplanting the Sattva approach. See, for example, s. 8-8(1) of The Insurance Act,

2015, which provides:

All the terms and conditions of a contract of insurance must be set out in full in the policy

or in writing securely attached to the policy when it is issued, and unless so set out no term

of the contract or condition, stipulation, warranty or proviso modifying or impairing its

effect is valid or admissible in evidence to the prejudice of the insured or a person to whom

insurance money is payable under the contract of insurance.

12

For example, see Metropolitan Toronto Condominium Corporation No. 590 v The Registered Owners and

Mortgagees of Metropolitan Toronto Condominium Corporation No. 590, 2020 ONCA 471 at paras 13–15.

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[93] In our opinion, however, this principle does not extend to statutory provisions that deal

with the subject matter of a contract, such as insurance, as opposed to the contract itself. As a rule,

the mere fact that an enactment defines or uses a word or phrase also found in a contract does not

affect the interpretation of that word or phrase as used in that contract. This reflects the application

of the cardinal presumption under the Sattva approach; that is, the parties intended the legal

consequences of the words they chose to use, which is determined by the ordinary meaning of

those words and the way in which they are used in the contract, interpreted in light of the

surrounding circumstances. If the contract or extrinsic evidence does not disclose that the

contracting parties intended the meaning of a word in their contract to accord with the definition

or usage of that word in legislation, the legislated meaning would not apply.

[94] Where the contract is a commercial contract, rather than a consumer contract, the Sattva

approach can lead to a different result due to the probative value of industry-specific language,

knowledge and practices that are specific to an industry or a commercial setting. This is reflected

in the concept of legal “terms of art”. This, too, is a concept that was not specifically considered

in either Sattva or Ledcor. It was, however, relied on by the Judge in determining the meaning of

premium. In each of his decisions, the Judge defined the word premium or the phrase payment of

premiums by looking outside the text of the contract. He concluded that, when premium is used in

the “insurance context”, it is understood to have “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” (Mosten

Decision at para 119; Atwater Decision at para 129; and Ituna Decision at para 117).

[95] The dissenting reasons of L’Heureux-Dubé J. in Manulife Bank of Canada v Conlin, [1996]

3 SCR 415 at para 44 [Conlin], are of interest in this context. In that case, where she was the only

judge to write on this point, L’Heureux-Dubé J. framed her reasons by first quoting the following

passage from Lord Diplock in Sydall v Castings Ltd., [1967] 1 QB 302 (CA) at 313–314 (at

para 42):

Documents which are intended to give rise to legally enforceable rights and duties

contemplate enforcement by due process of law which involves their being interpreted by

courts composed of judges, each one of whom has his personal idiosyncrasies of sentiment

and upbringing, not to speak of age. Such documents would fail in their object if the rights

and duties which could be enforced depended upon the personal idiosyncrasies of the

individual judge or judges upon whom the task of construing them chanced to fall. It is to

avoid this that lawyers, whose profession it is to draft and to construe such documents,

have been compelled to evolve an English language, of which the constituent words and

Page 38

phrases are more precise in their meaning than they are in the language of Shakespeare or

of any of the passengers on the Clapham omnibus this morning. These words and phrases

to which a more precise meaning is so ascribed are called by lawyers “terms of art” but

are in popular parlance known as “legal jargon”. …

(Emphasis added by L’Heureux-Dubé J.)

[96] Justice L’Heureux-Dubé went on to define legal term of art in the context of contract

interpretation:

[43]

After having specified the nature of “legal terms of art”, Lord Diplock stated the

basic rule of judicial interpretation, as well as the methodology, that are applicable in that

context (at p. 314):

The words and phrases...which are “terms of art” must therefore be given

the meaning which attaches to them as terms of art;...

The lexicon of terms of art is to be found in the decided cases and in the textbooks consulted

by legal practitioners.

[44]

It is quite obvious that where courts expound judicial interpretations of “legal

terms of art” using such external aids as legal textbooks, the resulting outcome cannot

appropriately be labelled a “plain meaning” definition.

[45]

Where an instrument uses a legal term of art, there is a presumption that the term

of art is used in its correct legal sense: Inland Revenue Commissioners v. Williams, [1969]

1 W.L.R. 1197 (Ch.; Megarry J.).

[46]

This is the presumption that is resorted to by my colleague Iacobucci J. when he

makes use of admissible external aids—i.e.: McGuinness, supra,—in determining the

correct meaning of the phrase “to give time”. As McGuinness reviews extensive case-law

authority that establishes the generally accepted “meaning in law” of these “legal terms of

art”, it is an admissible external aid to judicial interpretation: see Driedger, supra, at

pp. 428, 468 and 474; see also P.-A. Côté, The Interpretation of Legislation in Canada

(2nd ed. 1991), at pp. 449-53 and 457-58.

[97] This reasoning fits comfortably with Sattva, Ledcor and our approach to issues of standard

form contract interpretation. The reference to legal terms of art, like the reference to boilerplate

clauses, is a reference to contractual terms that may be used in a fashion such that they have the

three characteristics that make them standard form contract language. That being so, they have

precedential value. In Ledcor, Wagner J. spoke tangentially to this point when he preferred an

interpretation of a term of the contract in question because it was “consistent with previous

interpretations of similar clauses in the jurisprudence” (at para 63).

[98] The decision in IFP Technologies, which was relied on by the Judge, illustrates this

principle. As the Judge noted, the Alberta Court of Appeal there 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,

Page 39

therefore, the Court interpreted the contracts in question using that accepted meaning and usage.

The Judge adopted the following reasoning in IFP Technologies, where Fraser C.J.A. characterised

this approach as analogous to the reasoning relating to standard form contracts:

[60]

Where a standard form contract is involved, the standard of review that applies to

its interpretation is usually correctness: [Ledcor at paras 4, 24, 46, 48]. 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 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. “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. [Footnote omitted]

[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, supra at para 53; Deslaurier Custom

Cabinets Inc. v 1728106 Ontario Inc., 2017 ONCA 293 at paras 65-68. …

[99] As we have said, we do not see this as analogous reasoning but as an application of the

same principles of precedential value to terms of art, as they would apply to any other standard

form contract language. Cast in the terms we have adopted, the interpretation of a legal term of art

is—if the three defining characteristics exist—an issue of standard form contract interpretation. A

term of art is standard form contract language, repeatedly used without a meaningful factual matrix

specific to the parties. As Fraser C.J.A. explained, it is a term of art precisely because it has a

known and accepted meaning and usage in a given industry. Where participants in that industry

have used such standard form contract language and there is no meaningful factual matrix specific

to the parties in relation to that language, the accepted meaning and usage constitutes a part of the

factual matrix because it is known or ought to be known by industry participants.

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[100] The issue in these matters is whether the use of the word premium or the phrase payment

of premiums meets this standard and is, accordingly, an issue of standard form contract

interpretation. That issue is addressed below.

VI. ANALYSIS

A.

Introduction

[101] These matters raise two broad questions for the Court to answer: (a) did the Judge err in

his interpretation of any of the ULPs; and (b) did the Judge err in his interpretation of the 2018

Regulation? As to the first of these, the principal issue of contract interpretation before the Judge

in each case was whether the ULP in question allowed for an insured to invest an unlimited amount

in the side account.

[102] The parties submit the Judge correctly identified Ledcor as outlining the basic framework

for interpreting the ULPs qua standard form insurance contracts, but they disagree as to how it

should be applied. With respect, we have a different opinion. For the reasons explained above, we

agree that Ledcor governs the choice of appellate standard of review in relation to the issues of

interpretation raised by the parties. These issues relate to the interpretation of a contract that is

entirely in a standard form. For reasons that we explain below, we find there is no meaningful

factual matrix relating to contract formation that is specific to the parties to any of the ULPs. Each

of the ULPs has been entered into repeatedly and, more specifically, the contested language has

been used repeatedly. As such, the three characteristics that identify an issue of standard form

contract interpretation exist and the correctness standard applies on appellate review, as it did in

Ledcor.

[103] We do not agree, however, that Ledcor outlines the legal framework for interpreting the

ULPs. That is so for two reasons. First, Ledcor was concerned with the interpretation of a

commercial insurance contract. The ULPs are not contracts of that kind. The fact they are not

commercial contracts is a crucial distinction in determining what evidence of surrounding

circumstances is admissible. Second, the fact they are both life insurance contracts and investment

contracts is also a crucial distinction. We have concluded that the principles of interpretation that

apply to insurance contracts, and particularly to commercial insurance contracts, such as those

Page 41

related to exclusion clauses, etc., do not apply to the issues of standard form contract interpretation

arising in respect of the ULPs. The reasons for this and our conclusion are set out below.

[104] We have described the Sattva approach as the correct approach to all issues of contract

interpretation, including issues of standard form contract interpretation. We must, accordingly,

determine whether the Judge interpreted the contested portions of the ULPs in a manner that,

however he described the process, was consistent with the Sattva approach as we see it. If we

decide he did not do so, we must interpret the contested contract language anew.

B.

Issues Common to All Three Matters

[105] Certain issues, including the evidentiary issues, are common to all three of these matters.

We have decided to dispose of these issues first. Similarly, the cross-appeals all question the

correctness of the Judge’s conclusions about the same statutory instrument, being the 2018

Regulation. For that reason, the cross-appeals will be addressed separately but together, after we

apply the principles of interpretation to the ULPs.

1.

Evidentiary Issues

[106] As may be apparent by now, our analysis of the standard of review and the framework for

interpreting a contract resolves the parties’ allegations that the Judge erred in his assessment of the

admissibility and relevance of the evidence proffered by the parties.

[107] For evidence to be admissible it must be relevant. Evidence that tends to make the existence

of a fact more or less probable is probative of that fact. A fact is material if it is or tends to prove

or disprove an element of a cause of action or of a defence or any other fact that must exist for the

court to rule in favour of one side or the other in an action. Justice Watt precisely defined factual

relevancy, materiality and admissibility in these terms in R v Candir, 2009 ONCA 915, 250 CCC

(3d) 139:

[47]

Relevance is not an inherent characteristic of an item of evidence. Relevance exists

as a relation between an item of evidence and a proposition of fact that the party adducing

the evidence seeks to prove or disprove by the introduction of the evidence. Relevance is

relative, not absolute, a function of and dependent on the circumstances of the case in which

it is offered, including, but not only, the positions of the parties: R. v. Pilon (2009), 243

C.C.C. (3d) 109 (Ont. C.A.), at para. 33.

Page 42

[48]

The threshold for relevance is not high. To determine whether an item of evidence

is relevant, a judge must decide whether, as a matter of human experience and logic, the

existence of a particular fact, directly or indirectly, makes the existence of a material fact

more probable than it would be otherwise: see R. v. Cloutier, [1979] 2 S.C.R. 709, at

pp. 730-32. The exclusivity or cogency of the inferences that may be drawn from the item

of evidence have no place in the inquiry into relevance: see R. v. Underwood (2002) 170

C.C.C. (3d) 500 (Alta. C.A.), at para. 25.

[49]

Materiality is a legal concept. Materiality defines the status of the proposition a

party seeks to establish by the introduction of (relevant) evidence to the case at large. What

is material is determined by the governing substantive and procedural law and the

allegations contained in the indictment. Evidence is material if what it is offered to prove

is in issue according to the governing substantive and procedural law and the allegations

contained in the indictment. Evidence is immaterial if what it is offered to prove is not in

issue under the governing substantive and procedural law and the allegations contained in

the indictment.

[50]

Admissibility is wholly and exclusively a creature of the law. The rules of

admissibility, for the most part negative, exclude evidence that is both relevant and

material. A rule of admissibility need not be invoked when an item of evidence is either

irrelevant or immaterial. Evidence is admissible if it satisfies all applicable exclusionary

rules.

[108] These principles are equally applicable in a civil context. In brief, relevant evidence is

anything that has some tendency to show that a material fact is true. Evidence that is irrelevant or

immaterial is not admissible.

[109] The issues put to the Judge in these matters were issues of standard form contract

interpretation. That is so in part because there was no meaningful factual matrix specific to the

parties to the ULPs that would assist with their interpretation. That conclusion is clear from both

the evidence proffered and the absence of evidence regarding Dr. de Bruin, Mr. Walkom and

Mr. Zinkhan. The evidence tendered by the Respondents was fact and opinion evidence known to

industry participants and experts. Nothing suggests that the disputed evidence that was rejected,

or that was admitted, was known to Dr. de Bruin, Mr. Walkom or Mr. Zinkhan. Nor is there any

basis to infer that it ought to have been known to them. Broadly speaking, we are of the same view

as the Judge, who had this to say in Mosten:

[250] In the context of a summary proceeding, where the primary task is to interpret an

insurance contract and where the parties are all agreed that the permissible factual matrix

evidence does not include evidence of a contracting party’s subjective intention and

consists only of objective facts known by the parties at or before the date of contracting,

the Court was faced with in excess of 5,000 pages of sworn evidence, expert reports and

exhibits. It is obvious, simply from the statistical summary provided above, that the

evidence tendered goes light years beyond the evidence of objective facts known by both

parties at or before the date of contract.

Page 43

[251] The attempts of the insurers/respondents Manulife, Industrial Alliance and BMO

in the related proceedings to place into the evidentiary record comprehensive information

and views they had related to Universal Life policies was, in my respectful opinion,

misguided. It failed to focus on what was permissible and admissible evidence when

interpreting a standard form contract. The result of their approach was to overwhelm the

court with detail and failure to provide much needed focus. This was compounded on all

sides by a similar lack of focus in the thousands of pages of written argument and

submissions.

[110] In terms of the parties’ allegations of error, this means there is no evidence extrinsic to any

of the ULPs that is relevant to the issues of standard form contract interpretation that they have put

before the Court. Accordingly, where the Judge excluded such evidence as irrelevant, immaterial

or inadmissible, he did so correctly. Where he admitted it, he erred.

2.

Case Law Interpreting ULPs

[111] The Judge properly concluded that case law precedents were relevant to the issues of

interpretation before him. In his decisions, he wrote:

The only Canadian decisions relating to a universal life insurance policy that counsel cited

or that I have been able to identify are Fehr v Sun Life Assurance Company of Canada,

2018 ONCA 718, 84 CCLI (5th) 124 [Fehr], and Kang v Sun Life Assurance Company of

Canada, 2013 ONCA 118, 19 CCLI (5th) 171 [Kang], and the trial level decisions that

preceded them. The Kang decision is not instructive to any measure.

The Fehr case related to a proposed $2.5 billion class action concerning more than 230,000

life insurance policies sold by Metropolitan Life Insurance Company of Canada between

1985 and 1998 and allegations of misrepresentation in the sale of the policies and breach

of contractual and other duties relating to premiums and fees charged to the policyholders.

There is nothing in the reported decisions that provides any indication as to whether these

policies had Side Accounts similar to those in the subject policies or the contractual

language relied upon by [the Appellant] in this action.

The decision of the Court of Appeal does contain a discussion of the nature or

characteristics of the universal life insurance policies there in question. In that respect, the

reasons for judgment state the following:

[19]

This action involves four variations of “universal life” insurance

policies sold by MetLife in Canada. The four policies had different

features, catering to different consumer preferences.

[20]

A traditional “whole life” insurance policy charges fixed

premiums to fund a death benefit and an investment account. A universal

life policy offers more choice and flexibility to the insured. Like a whole

life policy, it has a cash accumulation feature. But it permits the insured to

pay premiums in variable amounts on a flexible schedule, to take

advantage of different investment options for surplus funds and to vary the

death benefit. Premiums paid by the insured are paid into an

“accumulation fund”. Cash in the accumulation fund is paid out from time

to time to cover: the cost of the insurance (“COI”), that is the cost of

Page 44

insuring the death benefit; the costs of administration; and the acquisition

of investments. Income on the investments is added to the policyholder’s

accumulation fund.

[21]

Thus, in addition to providing life insurance, the policy serves as

an investment vehicle. It has tax advantages, because income in the

investment fund accrues on a tax-deferred basis. The policy’s cash value

may enable the policyholder to borrow money from the policy.

Alternatively, surplus funds can be used to pay future premiums from time

to time (a so-called “premium holiday”) or for the remaining life of the

policy (sometimes referred to as a “vanishing premium”).

[22]

But universal life insurance is not without risks. Because

premiums are not fixed, poor investment returns, due to low interest rates

or market declines, can cause premiums to increase and reduce the value

of the accumulation fund. If the accumulation fund is depleted, the insured

will have to pay increased premiums or see the entire policy lapse.

[23]

It is unnecessary to provide a detailed description of the terms of

the various policies in order to address most of the issues on this appeal. I

will discuss some of the pertinent provisions of the policies when I

examine the motions judge’s analysis of the common issues.

[24]

These policies were fairly complex financial instruments. The

manner in which they operated was not obvious from the policy language.

It is not surprising, therefore, that MetLife’s sales agents frequently used

standard sales pitches and illustrations to demonstrate the operation of the

policies to their clients.

[25]

Many of these policies were sold during times of high interest

rates. Most projections given to prospective policyholders were based on

those rates continuing. Everything was rosy when interest rates were high.

Premiums were low, accumulation funds grew, and policyholders were

happy. But when interest rates began to fall in the mid-1990s and into the

2000s, MetLife’s profits also fell. As did the income on policyholders’

accumulation funds. Correspondingly, premiums and administration costs

charged by MetLife and its successors went up. Some of these increased

charges were paid out of policyholders’ accumulation funds.

…

[64] I have noted that the policies are relatively complex financial

instruments. They are also relatively complex contracts. The language is

technical and legalistic, and important terms are undefined. For example,

there is no definition of “minimum premium” or “maximum premium”.

The actual meaning of those terms is a matter of controversy. According

to Sun Life, “minimum premium” does not mean the lowest premium that

a policyholder is required to pay in order to keep the policy in good

standing. And “maximum premium” does not mean the highest premium

that can ever be charged to a policyholder. Some technical terms, such as

“non-rated classification”, are undefined. Other terms, such as “premium”,

“monthly cost of insurance” and “monthly insurance charge”, are

confusing. Key provisions, such as the manner in which Sun Life could

adjust the COI from time to time, are opaque.

Page 45

[65]

The motions judge himself required extensive additional

evidence, including expert evidence, before he could determine whether

Sun Life had breached the policy by adjusting the COI based on factors

not enumerated in the policy. He was unable to do so by simply

interpreting the policy and comparing it to what Sun Life claimed it was

entitled to do. This was a key breach of contract issue, to which I now turn.

These reasons demonstrated that complexity appears to be endemic to universal life

insurance policies and that, in addition to providing life insurance, universal life insurance

policies serve as investment vehicles with tax advantages. There is nothing in the Fehr

decision which provides precedential guidance that assists me in the interpretation of the

subject policies on the issue of whether the policies were intended to provide investment

options beyond the tax‑advantaged investment options within the exempt policy criteria of

the Income Tax Act.

In the trial level decision of Perell J. (Fehr v Sun Life Assurance Co. of Canada, 2015

ONSC 6931, 56 CCLI (5th) 15), he said the following at paragraph 91:

[91]

Under a universal life insurance policy, the premiums pay for:

(a) insurance (a death benefit), for which there are COI [Cost of Insurance]

and Administrative Fees; and (b) an investment that earns income. Under

a universal life policy, the insured’s premiums are paid into an account

that is called an Accumulation Fund. The money in the Fund is used to pay

the COI and an Administrative Fee and to purchase the investment. The

earnings form the investment are added to the Accumulation Fund.

Perell J.’s statement that the earnings form the investment and are added to the

Accumulation Fund provides no guidance to me. His decision did not address the specific

issues before me. Nonetheless, there is nothing in his interpretation of the universal life

insurance policy before him that suggested it included investment options beyond those

permitted under the tax-exempt criteria.

(Mosten Decision at paras 149–153; Atwater Decision at paras 156–160; and Ituna

Decision at paras 145–149)¹³

[112] In addition to the two cases cited in the Judge’s reasons, we have identified the following

cases as involving the interpretation of a ULP:

(a)

(b)

R v Bilodeau, 2009 TCC 315 at para 4;

Bellaire v Independent Order of Foresters (2004), 5 CPC (6th) 68 (WL) (Ont Sup

Ct), particularly paras 7–11 and 19;

(c)

Lee v Transamerica Life Canada, 2017 BCSC 843 at paras 11–12, [2017] 11 WWR

146;

¹³The quoted text is from the Atwater Decision and the Mosten Decision. We acknowledge there are minor differences

in the language the Judge used in the relevant paragraphs of the Ituna Decision, but the differences are not material to

the issues in these appeals.

Page 46

(d)

Kerr v CIBC World Markets Inc., 2017 ONSC 777 at paras 33, 140–142, 150, 153–

154 and 156, 64 BLR (5th) 115;

(e)

(f)

Lamarche v Teolis, 2006 QCCS 2317 at paras 26–29; and

Cardinal Morello v BMO Nesbitt Burns Financial Services Inc., 2013 QCCS 3991

at paras 11–12, 23, and 46–47.

[113] The decision in Louisméus c Manufacturers Life Insurance Company (Manulife

Financial), 2017 QCCS 3614 [Louisméus], appeal dismissed, 2017 QCCA 1710, is of potential

value. There, the Courts of Québec were called upon to interpret the standard form ULP called the

de Bruin ULP in these reasons. In that case, insureds had applied for a class action representing all

people who had taken out a “L’Architecte”-type universal life insurance policy between 1989 and

1993 with the death benefit option “fixe plus valeur du fonds” or “indexé”. The issue was that the

cost of the insurance had increased at a faster rate than the minimum premium to be paid and,

therefore, the amount deposited into the side account had decreased each year. In rejecting the

application at the superior court level, Hamilton J. interpreted the de Bruin ULP as follows:

2.

Le contexte plus général

[13]

La police «L’Architecte» est une police d’assurance vie universelle lancée par

Aetna le 15 mai 1989. Elle demeure sur le marché jusqu’au 31 décembre 1993.

[14] Elle est distribuée exclusivement par le biais de représentants en assurance qui ont

l’obligation de décrire le produit proposé au client.

[15] Elle inclut trois options pour le capital-décès : «fixe», «fixe plus valeur du fonds»

et «indexé».

[16]

La police-type est modifiée à plusieurs reprises entre 1989 et 1993. En particulier,

la clause «Critères de provisionnement minimal» dont il est question dans le présent litige

est modifiée de façon importante le 1^eravril 1990:

The current Minimum Fund Value Test provision in The Architect policy

has created some confusion for some agents. We are pleased to announce

a major revision and simplification to this provision. The provision has

been substantially improved. The contract wording is now much easier to

read and understand and you can illustrate the minimum fund values using

The Architect software.

[17]

Mme Louisméus souscrit sa première police «L’Architecte» le 9 août 1993 et sa

police inclut donc la nouvelle clause de provisionnement minimal simplifiée et améliorée.

La clause en vigueur en 1989-1990 n’est pas en preuve.

[18]

Selon les termes de la police, le critère de provisionnement minimal doit être

évalué après 10 ans. Dans les faits, l’assureur commence à effectuer le test en mai 2001 et

applique le critère d’une façon qui est moins onéreuse que ce que prévoit la police.

Page 47

L’assureur décide aussi à cette même période de ne pas appliquer le critère de

provisionnement minimal aux polices avec l’option capital-décès «indexé».

[19]

L’assureur évalue à cette période le nombre de polices «L’Architecte» qui seront

affectées par le test de provisionnement minimal:

Compte tenu de nos toutes dernières prévisions, plus de 50 % de tous les

contrats originaux l’Architecte souscrits au cours de cette période [entre

avril 1990 et décembre 1993] sont financés adéquatement parce que les

clients ont profité des occasions de croissance offertes par ce produit,

lequel bénéficiait d’un abri fiscal. Ensuite, 30 % des contrats ne sont pas

en danger dans l’immédiat mais pourraient avoir besoin de primes

additionnelles à l’avenir pour satisfaire aux exigences de financement

minimal en ce qui a trait à l’assurance vie et 20 % des contrats sont

financés au minimum et devront faire l’objet d’une intervention rapide

pour satisfaire au test.

[20]

Mme Louisméus allègue dans sa demande que Gauthier lui a dit que plusieurs

dizaines de milliers de polices «L’Architecte» sont vendues à travers le Canada entre 1989

et 1993.

[21]

Gauthier témoigne qu’il a vendu 44 polices «L’Architecte» entre 1989 et 1993,

dont celui de Mme Louisméus et son conjoint. Il témoigne qu’à date, aucun de ses autres

clients n’ont reçu une augmentation de leur prime en application du test du

provisionnement minimum.

(Footnotes omitted)

[114] None of the prior cases consider or reach a conclusion in relation to an issue of standard

form contract interpretation that is the same or similar to those arising in these matters. That said,

in the Mosten Appeal, we will take high-level guidance from the general comments of Hamilton J.

in Louisméus because he addressed the same standard form ULP. The general background

comments cited above in Fehr are also of interest, because they comment on the investment aspect

of the ULP in a manner consistent with our analysis and conclusion; th