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Standard Form Contract To Be Given Plain Meaning, Not The Industry Meaning: Supreme Court Of Canada

In its recent decision in Sabean v. Portage La Prairie Mutual Insurance Co., the Supreme Court of Canada has held that words in a standard form contract used by the public should be given their plain and ordinary meaning, and not a different meaning that those words might be given by the industry or trade which drafted the contract.

While this decision related to an insurance contract, it may well apply to standard form building contracts. The question may then arise as to whether building contracts – such as the CCDC contracts – are standard form contracts. If they are, can the words in those contracts have a trade or industry meaning when they are used between participants in the building industry who understand that meaning, and another meaning when they are entered into by a member of the public, such as a homeowner?


The plaintiff recovered a judgment arising from a motor vehicle accident. The judgment exceeded the limits of the tortfeasor’s insurance policy. The plaintiff claimed the shortfall under the policy with his own insurer. Under the standard form excess insurance provision of that policy, there were deductions from the amount payable by the insurer. One of those deductions was for future benefits arising from a “policy of insurance providing disability benefits.” The plaintiff was entitled to receive future Canada Pension Plan (CPP) disability benefits. The insurer asserted that the CPP was a “policy of insurance”. The trial judge held that the CPP benefits were not deductible from the amount payable by the insurer. The Nova Scotia Court of Appeal held that they were. The Supreme Court of Canada re-instated the trial judge’s decision, holding that the CPP benefits were not payable under a “policy of insurance”.

Decision of the Supreme Court of Canada

In arriving at its conclusion, the Supreme Court held that benefits payable by the Canada Pension Plan did not fall within the plain meaning of the words “policy of insurance”. The insurer then submitted that in Gill v. Canadian Pacific Railway, [1973] S.C.R. 654, the Supreme Court of Canada had decided that CPP payments were deductible in calculating monies due under the Families’ Compensation Act of British Columbia. The insurer submitted that the court in the present case should apply the reasoning in the Gill decision. More particularly, however, the insurer submitted that the Supreme Court should recognize that, by reason of the Gill decision, the deductibility of CPP benefits from damage claims had been recognized or assumed in the insurance industry and that therefore the words “policy of insurance” in private insurance policies, like the one in issue in the Sabean case, were meant to include CPP benefits. Accordingly, the insurer submitted that this meaning which had developed in the insurance industry, not the ordinary meaning of the words “policy of insurance, should be applied to those words.

The Supreme Court disagreed. Having found that the ordinary and natural meaning of the words “policy of insurance” did not include CPP benefits, the Supreme Court rejected the submission that an insurance industry or trade meaning could displace the ordinary meaning of those words. It said:

“The insurer submits and the Court of Appeal accepted that the meaning of “policy of insurance” under the Endorsement must be understood in the context of this Court’s decision in Gill. Implicit in the approach urged by the insurer is the suggestion that this Court’s decision in Gill itself supports an alternative reasonable interpretation of the disputed words at the first stage of the Ledcor analysis. As I shall explain, I cannot accept this as a reasonable interpretation of this insurance policy. Gill does not interpret or inform the ordinary words of the Endorsement. Nor would the average person applying for this insurance contemplate the distinct tort and statutory context in Gill in understanding the words of the Endorsement. The insurer relies on its specialized knowledge of the jurisprudence to advance an interpretation that goes beyond the clear words of the policy.” (underlining added)

The Supreme Court arrived at this conclusion for a number of reasons. The purchasers of insurance coverage are not knowledgeable about the insurance case law nor about the drafting of insurance policies:

“It cannot be assumed that the average person who applies to purchase this excess insurance policy would imbue the words in the Endorsement with knowledge of how they were interpreted by the courts for the purposes of provincial insurance legislation and the collateral benefits rule in tort. In this context, the purchaser is not someone with the specialized knowledge of related jurisprudence or of the objectives of the insurance industry. Thus, the history and intention of the insurance industry in drafting the Endorsement following Gill do not assist in the interpretation of this contract.” (underlining added)

In addition, the Gill decision dealt with a statutory, not a contractual, provision. The court in Gill was applying the legislature’s intent, not the intent of parties to a contract as in Sabean. As the Supreme Court said in Sabean:

“…the decision in Gill is confined to a distinct statutory context. When interpreting a statute, the court searches for the intention of the legislature. In interpreting a standard form policy of insurance, the court is concerned with the ordinary meaning of the contract as it would be understood by the average insured.”


This decision follows and has solidly entrenched the recent decision of the Supreme Court of Canada in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co. 2016 SCC 37. Both cases deal with standard form contracts. In Ledcor, the court held that the meaning of the words in a standard form contract cannot be changed by the circumstances surrounding one instance of the use of the contract, because they must be given the same meaning for all users of the contract.   In Sabean, the court has held that the meaning of the words in a standard form contract cannot be changed by industry or trade usage, at least when the contract is entered into by members of the public who are not familiar with the case law and drafting behind that wording. In both decisions, the Supreme Court has strongly endorsed the principle that standard form contracts, and particularly those prepared by a member of an industry for contracting with a member of the public, must be interpreted as written and in according with their ordinary meaning, and must not be altered by extraneous factors, particularly at the instance of and in favour of that industry.

This decision raises important questions for building contracts, such as the CCDC contracts. As I raised in my article of October 10, 2016 about the Ledcor decision, an initial question may be: are the CCDC contracts “standard form contracts”? Since they are not drafted by one particular company and are not issued on a “take it or leave it” basis to customers, but rather developed on a consensual basis by the entire building industry, there is an argument that building contracts like the CCDC contracts are not standard form contracts that fall within the Ledcor and Sabean decisions.

If building contracts do fall within the Sabean decision, what is the effect? If one of the parties to the contract is a member of the public – such as a homeowner, or a business seeking a building for its premises – then the decision in Sabean means that words in the contract may not be given a technical or trade meaning understood by the building industry but not by the general public.

But what if the contract is between the contractor and the subcontractor? Could the same contentious words in the contract be given a technical or trade meaning known to the building industry? And then what happens when there is a main contract with a member of the public and a subcontract between two members of the building industry, and the contentious words appear in both contracts? Could the words in the main contract mean one thing – because they cannot be given an industry meaning – but mean another thing in the subcontract – because the words have a well-known meaning in the building industry? And if the subcontract incorporates the main contract by reference, what happens to the conflicting meaning of the words?

Building contracts often contain a Definitions section to ensure that the parties understand what they mean by particular words. In the CCDC contracts, the Definitions are some two pages in length. The Sabean case is a warning to those drafting “standard form” contracts, including those in the building industry, that they should carefully review their contracts. If those contracts contain any wording that relies on an industry or trade meaning, that meaning should be clearly spelt out in the contract.

See Heintzman and Goldsmith on Canadian Building Contracts, 5th ed., chapter 2, parts 3(a), 3(e) and 4(v)

Sabean v. Portage La Prairie Mutual Insurance Co., 2017 CarswellNS 38, 2017 CarswellNS 39, 2017 SCC 7

Interpretation of Contracts – Standard Form Contracts – Trade and Industry meaning –

Thomas G. Heintzman O.C., Q.C., L.L.D. (Hon.), FCIArb                         March 5, 2017

This article contains Mr. Heintzman’s personal views and does not constitute legal advice. For legal advice, legal counsel should be consulted.


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