Alberta Business Law Practice Manual

Introduction

There are many kinds of businesses, with varied operations, leading to diverse interactions with customers and contractual obligations with other businesses. Disputes also take different forms: sometimes they are settled quickly, while at other times they require litigation in the courts or must be resolved through private arbitration.

Given the wide range of disputes that practitioners encounter, this chapter cannot fully address all possible business dispute topics; however, it does aim to provide a useful and practical resource for legal issues commonly grappled with.

First this chapter covers contractual concerns, including the use of “factual matrix” in interpretation, good faith doctrines (such as the duty to act “honestly”), and struggles associated with exclusion clauses.

As business disputes often implicate economic torts as well, this chapter next provides guidance on defamation actions and some common defences, as well as the law on negligent and fraudulent misrepresentation and restrictions related to the doctrine of “pure economic loss”.

Finally, because most business disputes end in settlement before they are finally adjudicated, this chapter also offers helpful tips and considerations with respect to settlement (i.e., different types of offers, settlement agreements, and releases).

Breach of Contract

Contractual interpretation and the factual matrix

Gone are the days when contractual interpretation was an exercise in examining only the four corners of the agreement. Today parties may rely heavily on a broad “factual matrix” to advance their respective interpretations of an agreement with the hope of securing their client’s desired outcome.

The factual matrix is meant to be a tool used in contractual interpretation to give meaning to words in their proper context, including the surrounding circumstances in which a contract has arisen (Geoff R Hall, Canadian Contractual Interpretation Law, 3rd ed (Toronto: LexisNexis Canada, 2016) at 24 [Hall]). The factual matrix is to “consist only of objective evidence of the background facts at the time of the execution of the contract” (Sattva Capital Corp v Creston Molly Corp, 2014 SCC 53 at para 58 [Sattva]). The exercise is to determine what a reasonable person would objectively have understood from the words of the document read as a whole and from the factual matrix, not what the parties subjectively intended (Hall at 30–33). In other words, the goal is to determine the “mutual and objective intentions of the parties as expressed in the words of the contract” (Sattva at para 57).

The Supreme Court of Canada [SCC] recently revisited and applied the principles of contractual interpretation in Resolute FP Canada Inc v Ontario (Attorney General), 2019 SCC 60 [Resolute]. Justices Côté and Brown, although dissenting in part, concisely restate (at paras 77–78) prior jurisprudence and provide a useful overview of the process of contractual interpretation, while explaining its purpose:

This is not to say that the words of the contract are to be read in isolation. This Court’s direction in Sattva was that the words of the contract are to be read in light of the surrounding circumstances—sometimes referred to as the “factual matrix” … An interpretation that ignores the context in which the contract was formed will not accurately discern what the parties intended to achieve … Put simply, contractual text derives its meaning, in part, from the context.

We stress that text derives its meaning from context in part. This leads to an important caveat: the context—that is, the factual matrix—cannot “overwhelm the words” of the contract or support an interpretation that “deviate[s] from the text such that the court effectively creates a new agreement” … The factual matrix assists in discerning the meaning of the words that the parties chose to express their agreement; it is not a means by which to change the words of the contract in a manner that would modify the rights and obligations that the parties assumed thereunder[.] [Emphasis in original]

It is worth stating again: contextual analysis should never overwhelm the meaning of the words reduced to the contract; the words remain paramount and the factual matrix only assists in interpreting their meaning.

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Torts

Although breach of contract is commonly at issue in business disputes, there are a number of economic torts that may come into play. Businesses that are financially injured through negligent acts or malicious slander by another business may seek their remedy outside of contract, if no contract governs or if the wording of the contract is such that it is to be avoided.

Defamation, misrepresentations, and some considerations surrounding negligence (relating to pure economic loss) are covered in detail below.

Defamation

As competition takes root in a geographical region or product area, each business fights for a piece of the available market. Unfortunately, in trying to set themselves apart, the temptation to discuss how one’s business is better sometimes leads to negative statements directed at the competition.

Reputation in business is everything. Negative public opinion has sunk more than a few businesses, and it can impact not only a customer base but also the ability to hire competent contractors or subcontractors. Although corporations cannot sue on the basis of hurt feelings, they can be damaged financially. Attacks on business reputation could include proclamations that it is corrupt, that it is a vehicle for fraud, that it does not abide by environmental or other regulatory requirements, or that it is unable to pay its contractors or complete services.

What is it?

Defamation, a common law tort codified in Alberta under the Defamation Act, RSA 2000, c D-7 [Defamation Act], has a low threshold. It is a statement (either written or spoken) attacking the reputation of the plaintiff as held by other members in the community. The test is objective: the threshold is met by proving the following elements as described by Chief Justice McLachlin in Grant v Torstar Corp, 2009 SCC 61 at para 28:

• The impugned words were defamatory, such that they would tend to lower the plaintiff’s reputation in the eyes of a reasonable person.
• The words referred to the plaintiff.
• The words were published, such that they were communicated to at least 1 person other than the plaintiff.

One would be correct in thinking that any negative comment could possibly be defamatory. Making things even easier for the plaintiff, liability is strict in the sense that damages need not actually be proven (such as the value of lost business), although prudent counsel will certainly work with their client, and possibly experts, to establish the same.

However, not all defamation is actionable given the broad range of defences. Just as reputation is important, democratic societies also value the free exchange of information and opinion, leading to a difficult balancing act. As the defences to defamation often form the battleground, a brief consideration of some common defences in business disputes is pertinent:

• Justification
• Fair comment
• Apology and retraction

Each of these defences is described in more detail below.

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Settlement

It is often said that almost all litigation ends in settlement, which is true. Nearly all business disputes resolve prior to trial for commercial reasons, such as the relationship between the disputing parties, there being too much risk in relying on the court to determine the outcome, or the amount in dispute not justifying the significant legal expense.

How parties engage in settlement can take different forms. Parties can have informal phone calls, embark upon formal in-person negotiations, or even retain a mediator.

There are also more than a few ways for counsel to present the other side with an offer to settle. This section discusses “without prejudice” offers, formal offers under the Alberta Rules of Court, Alta Reg 124/2010 [Rules of Court], and Calderbank offers. A caution as to what to consider when looking at settlement agreements and releases is also canvassed.

“Without prejudice” offers

To understand when a “without prejudice” offer to settle should be made, one must consider what constitutes settlement privilege. If documents or communications are truly protected by settlement privilege, the privilege cannot be waived by a single party—it can only be waived by both parties.

Strategically, counsel may need to rely on correspondence in the future. This is sometimes the case with demand letters. However, if a party does not wish its communication of offer to be placed before the court in an affidavit of records or as attached to an affidavit proving an admission, making a “without prejudice” settlement offer may be prudent.

The law offers a cloak of protection around settlement privilege because parties should be encouraged to settle their disputes outside of the formal litigation process. Because settlement discussions may inevitably lead to concessions of fact or liability, any party would be hesitant to engage without protection.

For protection from disclosure, the correspondence at issue must be in furtherance of settlement. Justice Slatter summarized the three conditions for settlement privilege in Hansraj v Ao, 2002 ABQB 385 at para 14 [Hansraj]:

• A litigious dispute must exist or be within contemplation.
• The communication must be made with the express or implied intention that it not be disclosed to the court in the event of failed negotiations.
• The communication’s purpose must be to attempt to effect a settlement.

Notably, placing the words “without prejudice” at the top of a piece of correspondence, while recommended and in furtherance of good practice, is not determinative of whether the record is indeed protected by settlement privilege. Justice Slatter reviewed previous law and stated that “if the correspondence is truly in furtherance of settlement and privileged, it makes no difference that the letter is not marked ‘without prejudice’” (Hansraj at para 14). In short, the three-part test above must be met.

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