Rules for appealing contract disputes continue to dog courts

A recent Alberta court decision arising from a fatal vehicle accident shows disagreement among legal experts over how to apply the Supreme Court of Canada’s 2016 Ledcor ruling.

A divided Alberta Court of Appeal ruling in EnCana Oil & Gas Partnership v Ardco Services Ltd., released Nov. 29, “illuminates problems” in applying Ledcor’s test for determining appellate court review of standard form contract disputes, according to Nicholas Konstantinov, a doctoral student at the University of Calgary law school.

Konstantinov reviewed EnCana in a Jan. 4, 2018 post on the CanLII Connects blog site.

In Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co, Canada’s highest court ruled that disputes over standard form contracts are subject to a “correctness” standard when parties appeal trial court decisions in breach-of-contract lawsuits. This essentially makes it easier for appellate courts to overturn lower court decisions involving standard-form insurance contracts.

The Ledcor ruling, in which the court found against Northbridge and other insurers in a faulty workmanship case, set out guidelines for how courts should rule on disputes involving insurance policies and other standard-form contracts.

In Canadian law, appellate court judges normally must give some deference to trial judges’ decisions in contract disputes. But Ledcor established an exception, in some cases, when appellate courts review standard form contracts — especially wording used by multiple insurers. Essentially, appeal court judges owe less deference to trial judges’ decisions in disputes over some standard-form contracts than they would in lawsuits involving contracts that are unique to the case.

In EnCana v. Ardco, a fatal vehicle accident in 2007 involved an EnCana vehicle. The vehicle was driven by a worker for personal use, which was against company policy. Using a standard-form contract, Ardco agreed to indemnify EnCana for employees’ negligent and tortious acts, among other things.

The Alberta Court of Queen’s Bench ruled that Ardco had to indemnify EnCana to settle claims from the 2007 accident. That was overturned on appeal in the Nov. 29, 2017 ruling. Two of the three judges hearing Ardco’s appeal found that, as in Ledcor, the standard of review was correctness. The dissenting judge disagreed, contending that the trial judge’s ruling against Ardco ought not to be overturned unless there was a “palpable and over-riding error.”

In Ledcor, the Supreme Court of Canada “created a high threshold to reach before the courts could step in and affect the freedom of contract between two sophisticated business entities,” Konstantinov wrote. This applies to situations in which a “power imbalance” does not exist, unlike in some relationships between insurers and clients.

Ledcor is a construction contractor that built an office tower in Edmonton in 2001. Insurance was provided by Northbridge, Royal & Sun Alliance Insurance Company of Canada, Chartis Insurance Company of Canada, Commonwealth Insurance Company, GCAN Insurance Company and American Home Assurance Company. A subcontractor damaged windows while cleaning them, at a cost of $2.5 million. The insurers denied coverage due to the faulty workmanship exclusion.

An Alberta Court of Queen’s Bench ruling against the insurers was initially overruled by the province’s appeal court but restored by the Supreme Court of Canada.

The standard of review is correctness, rather than reasonableness, when a dispute is over a standard form contract, when “the interpretation at issue is of precedential value, and there is no meaningful factual matrix specific to the particular parties to assist the interpretation process,” Justice Richard Wagner (who has since been appointed Chief Justice of Canada) wrote in Ledcor.