Alberta Court Of Appeal Sets Negotiation Parameters In Interpreting Contracts

In Sattva Capital Corporation v Creston Moly Corporation, 2014 SCC 53 (Sattva), the Supreme Court of Canada conclusively endorsed the principle of contractual interpretation that courts must always consider the 'surrounding circumstances' (i.e. background facts) known to both parties at the time a contract was made. However, another longstanding principle of contractual interpretation is that evidence regarding the parties' pre-contractual negotiations isgenerally inadmissible when interpreting a contract, unless the contract is found to be ambiguous. These principles can contradict each other. In practice, what the parties communicated to each other while negotiating a contract is often relevant to establishing the background facts that were known to both parties when the contract was made.