On February 4, 2020, for the first time, an appeal court expressly held the general principles of contract interpretation have subsumed the special interpretation rules that have long applied to releases. Releases are unique: by their nature, parties use as broad and general (often boilerplate) language as possible to maximize the protection they offer in the unknown future. But the Newfoundland & Labrador Appeal Court’s decision in Bailey v. Temple is a caution: a party receiving a release won’t get more protection than what it bargained for. In interpreting the scope of a release’s protection, to determine the parties’ mutual and specific intent a N.L. court will – just as when interpreting any contract – look to the specific references in the language of the release and the context, including the surrounding circumstances, in which the parties executed it.

While releases will still, by necessity, include broad and general language, parties are well-advised to balance that with specificity about exactly what the release is intended to cover and keep the context lined up with that intent. And although Bailey v. Temple isn’t binding on courts outside of Newfoundland and Labrador, parties in other jurisdictions might want to pay it heed: it’s consistent with the Supreme Court of Canada’s approach to the interpretation of indemnities in its 2019 decision in Resolute FP Canada Inc. v. Ontario. McInnes Cooper Litigation Lawyer J. Alex Templeton represented the successful party in the appeal.

The Case. In Bailey v. Temple, Ms. Bailey suffered injuries when her vehicle struck Mr. Temple, a pedestrian worker, and his employer’s vehicle. She and her husband, a passenger at the time of the accident, sued the employer for recovery of damages respecting her injuries and their property damage. Mr. Temple sued Ms. Bailey for damages for his injuries. Mr. Temple’s employer settled the Baileys’ claim for a nominal sum and received an executed release from them. The release included the usual boilerplate terms, including that the employer was released from “…all demands and claims of any kind or nature whatsoever arising out of or relating to the accident which occurred on or about …”. Years later, Ms. Bailey’s insurer commenced a third party claim against the employer in Mr. Temple’s action claiming that if Ms. Bailey were liable to Mr. Temple, she sought indemnity or contribution from the employer respecting his damages. The employer applied for summary dismissal of Ms. Bailey’s third party claim on the basis the release barred it. The trial court decided the release covered Ms. Bailey’s third party claim against the employer and ordered it stayed. Ms. Bailey appealed – and the Appeal Court unanimously decided the trial court made an error of law in finding the release applied to the third party claim.

The “Special Rule” for Releases. In the past, releases were subject to a special rule of interpretation: the “Rule in London and South Western Railway”, dating to an 1870 U.K. House of Lords decision. This rule guided courts to interpret a release to cover only those matters specifically in the parties’ contemplation when it was given, allowing a court to consider a broad range of evidence of surrounding circumstances.

The General Rules for Contracts. The Appeal Court concluded Supreme Court of Canada jurisprudence affirming general principles of contract interpretation have now subsumed the longstanding former rule of interpretation of releases. The Court noted the Rule in London and South Western Railway, “…is, in effect, a particular application of the general approach to contractual interpretation which approach requires taking account of surrounding circumstances known to the parties at the time of contracting, for the purpose of giving meaning to the words used”. The Court then endorsed a new analytical structure for the interpretation of releases:

• No particular form of words is necessary to constitute a valid release; any words showing an evident intention to renounce a claim or discharge the obligation are sufficient.

• The normal rules relating to the construction of a written contract also apply to a release; a court will construe a release in general terms according to the particular purpose for which it was made.

• The court will construe a release that is general in its terms in light of the circumstances existing at the time of execution and with reference to its context and recitals to give effect to the intention of the party that executed it.

• The court will not construe a release as applying to facts of which the party giving the release had no knowledge at the time of its execution or to objects that must then have been outside that party’s contemplation.

• The court’s construction of any individual release will necessarily depend on its particular wording and phraseology.

The Application of the Rules to the Case. The Court decided the trial court incorrectly applied these interpretative principles in the case, an error that materially affected the result: what was in the employer’s contemplation in drafting the release wasn’t determinative of the parties’ mutual intent. It was necessary for the trial court to determine what both parties “specifically” contemplated.

• Specific References. The trial court concluded that because the words of the release were broad and general, the parties must have contemplated releasing both first party and third party claims. The Court held it was necessary to consider the release’s general words against more specific references in it to determine what was specifically in the parties’ contemplation when the release was given. The specific references didn’t reflect losses unrelated to the Baileys’ own damages, or mention the Temple action or the possibility of a third party claim against the employer resulting from it.

• Context. And it wasn’t sufficient that the broad general wording of the release potentially covered a subsequent third party action for contribution. The trial court was required to assess the context and the surrounding circumstances to determine what an objective bystander would conclude was the specific intent of both parties, and the scope of their understanding. While the Temple action had been commenced when Ms. Bailey executed the release, the third party action had not. This wasn’t enough to put a potential third party action within her contemplation when executing the release. Furthermore, the correspondence between the parties’ counsel made no reference to the Temple action or the possibility that at some future date the Baileys might consider any third party claim against the employer in the Temple action.

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