Interpretation Of Interrelated Contracts In A Commercially Effective Manner: Clarification Of Two Important Principles Of Contractual Interpretation

It is well established that when interpreting a contract the document must be read as a whole, without considering the disputed words or phrase in isolation from the rest of the contractual text. In recent years, the Ontario Court of Appeal has expanded this principle to the interpretation of interrelated contracts, such that if (as commonly happens) a transaction is given effect by a series of contracts, all of the contracts in the series must be considered in interpreting any one of them (the interrelated contracts principle).

It is also well established that commercial contracts are to be interpreted in accordance with sound commercial principles and good business sense (the commercial efficacy principle). However, several recent cases from the Ontario Court of Appeal, most notably the oft-quoted Ventas, Inc. v. Sunrise Senior Living Real Estate Investment Trust, at para. 24, suggested that the commercial efficacy principle is only applicable when the contract is