Be sure your Ontario business contracts are clear and airtight
Craft your commercial agreements with care and precision to avoid contractual disputes later.
Our province is full of commercial innovation and business success. This is apparent from the efforts and accomplishments of entrepreneurs, partnerships, corporations and other kinds of businesses of all sizes and types. Now that we can see the light at the end of the tunnel that COVID-19 created, many businesses will be ramping up again.
Doing business cannot occur in a vacuum. Contracts and agreements are necessary for almost every aspect of a commercial enterprise to function. Contracts may include leases and agreements for supplies, services, equipment purchases and many others, depending on the nature of the business.
It is imperative that an Ontario business enter into contractual agreements carefully and mindfully. While it may seem that a particular arrangement is straightforward, a lawyer will know what terms are important and how to draft them to create the contractual duties, benefits and liabilities the business client needs. A lawyer understands and can avoid the common kinds of drafting errors that can evolve into the subject of a dispute between the parties.
Whether the business owner drafts the contract or reviews the contract as written by the other party, the choice of words and written provisions must be clear, precise and unambiguous. The words may have particular meaning in an industry, or the parties may specifically define terms within the agreement. The goal is to express the joint intentions of the parties without any vagueness that could fuel future disagreements about what they agreed to.
If parties to a business agreement cannot resolve contractual disputes through negotiation, the matter could end up in litigation. In court, neither party may end up happy, so taking the time and making the effort to see that the contract is clear on its face upfront provides a buffer against future disagreements.
The Supreme Court of Canada explained in Hydro-Quebec c. Matta how Canadian courts analyze contractual terms:
- If the words in the contract clearly describe the intentions of the parties, the court can enforce those intentions.
- If after reading the contract as a whole the court finds the disputed provisions are “vague, ambiguous or incomplete, the common intention of the parties must be sought.”
In other words, the court will enforce a precise, clear contract as written, but if it is ambiguous or unclear or has missing terms, the court then tries to determine what the parties intended.
The Supreme Court of Canada put it another way in 1704604 Ontario Ltd. v. Pointes Protection Association when it said that interpreting a written provision in a contract “must be grounded in the text … [and] read in light of the entire contract.” In interpreting the words, the “surrounding circumstances” are relevant, but not if they “distort the explicit language of the agreement … [or] distort the ordinary meaning of the words …”
Rules of construction
Other rules of contract interpretation may apply. For example, the court may construe an ambiguity against the drafter and in favor of the other party. Or, the court may find that terms may be implied if they are customarily used a certain way between the parties, called for by the type of contract or based on the parties’ presumed intentions if the implied term is necessary for the agreement to be effective or produce the desired result, according to the Supreme Court of Canada.
The experienced lawyers at O’Connor Richardson Professional Corporation with offices in Toronto and Hamilton represent small- to medium-sized and international business clients in negotiating, drafting and reviewing commercial contracts as well as in contract disputes and litigation throughout the GTA and Ontario’s Golden Horseshoe.