Corner Brook (City) v. Bailey, 2021 SCC 29

Facts

While driving her husband’s car, Mary Bailey struck a City employee who was performing roadwork. The employee sued Bailey for his injuries.

Bailey and her husband then sued the City for property damage to the car and for physical injury suffered by Bailey in the accident. The City settled with the Baileys and had them sign a release that released the City from further liability for the accident.

Years later, Bailey brought a third-party action claiming contribution and indemnity from the City in regard to the employee’s action against her. The City applied to dismiss the third-party claim, arguing that the release Bailey signed in the other action prevented her from third partying the City in this one.

Lower Court Decisions

The summary trial judge concluded that, based on the words in the release and the  facts known to the parties when it was signed, Bailey’s third-party claim against the City was barred. The Newfoundland Court of Appeal overturned the decision, concluding that the release only contemplated Bailey’s action, not the employee’s separate action.

Supreme Court of Canada Decision

The Supreme Court of Canada overturned the Appeal Court, finding that the release prevented Bailey from third-partying the City.

In its decision, the Court confirmed that releases should be interpreted like any other contract. To do this, a court will analyze the wording of the release within the surrounding circumstances that were known (or ought to have been known) to the parties when the release was signed. The Court also reaffirmed that parties can release unknown claims with sufficient language.

In this case, language indicating a bar of the third-party claim included a release of:

• “all actions…foreseen or unforeseen… and claims of any kind or nature whatsoever relating to the accident”; and
• “claims raised or which could have been raised in the [Bailey Action]” but without limiting the Release to such claims.

In terms of surrounding circumstances, the Court noted that both parties were aware that Bailey had struck the employee with a vehicle. Accordingly, both knew (or ought to have known) that the employee could have an outstanding claim against Bailey or the City, which could result in finger-pointing between the two.

The Court left open the question of whether negotiations between the parties can be considered as part of the surrounding circumstances when interpreting a contract, hinting that this issue needs further consideration.

Takeaway

As with any contract, special attention must be paid when drafting releases. Although the “kitchen sink” approach may be tempting, sweeping language can work against you. This is because releases may be interpreted narrowly if broad language contradicts surrounding circumstances when the release was signed. For example, a court is unlikely to conclude that a release signed to resolve a 2021 nuisance action would cover an unrelated negligent act occurring in 2030.

How best to draft a comprehensive and enforceable release? Consider these tips:

• Incorporate language releasing both “known and unknown” claims.
• Include reasonable limits on released claims by narrowing the release to a specific subject matter, event, or time frame.
• Do not assume that pre-settlement discussions or negotiations will be relevant in interpreting the release. If there is something specific and important you want covered, include it
  in the release.
• Less is more. Although your release should be comprehensive and specific, avoid redundancy and lengthy lists of words separated by many commas and semi-colons. This can create confusion without adding substance.

If you have questions about the scope of releases, contact Chelsey Mack or our Local Government Team.

Content originally drafted by Chelsey Mack for the MIABC and published in MIABC 2021 Legal Roundup in December 2021.