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Terms may be implied in a contract: (1) based on custom or usage; (2) as the legal incidents of a particular class or kind of contract; or (3) “to give business efficacy to a contract or as otherwise meeting the ‘officious bystander’ test

Ontario

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Canada

Implied Contract Terms In 3258042 Nova Scotia Limited v. Transport Canpar L.P., 2021 NSCA 84, a portion of a building roof collapsed, causing damage to a tenant’s property. The tenant commenced an action against the landlord claiming it was liable in contract and/or tort. The tenant won at trial because the trial judge implied a term into the lease that the building was designed and constructed to certain standards. The trial judge found that the landlord breached that term, or that the landlord was liable in negligence as an alternative. The landlord appealed. Court of Appeal Decision – Standard of Review On appeal, Farrar J.A., writing for the Court, held that the correctness standard continues to apply to extricable legal questions, including the application of an incorrect principle or failure to consider a required element of a legal test or a relevant factor (para 17). Court of Appeal Decision – Implying A Term into A Lease Terms may be implied in a contract: (1) based on custom or usage; (2) as the legal incidents of a particular class or kind of contract; or (3) based on the presumed intention of the parties where the implied term must be necessary “to give business efficacy to a contract or as otherwise meeting the ‘officious bystander’ test as a term which the parties would say, if questioned, that they had obviously assumed” (para 21). With respect to the officious bystander test, in determining the intention of the parties, attention must be paid to the express terms of the contract in order to see whether the suggested implication is necessary and fits in with what has clearly been agreed upon, and the precise nature of what, if anything, should be implied. What is important in both formulations is a focus on the intentions of the actual parties. A court, when dealing with terms implied in fact, must be careful not to slide into determining the intentions of reasonable parties. This is why the implication of the term must have a certain degree of obviousness to it, and why, if there is evidence of a contrary intention, on the part of either party, an implied term may not be found on this basis (para 24). The test is not whether it would be desirable, reasonable, or logical to imply a term, but rather what the parties intended (para 26). Court of Appeal Decision – Interpretation vs. Implication There is a clear distinction between the interpretation of contractual provisions and the implication of terms into a contract. The question of implication arises where an instrument does not expressly provide for what is to happen when an event occurs. Interpretation gives meaning to the words used by the parties; implication fills gaps in those words (para 27). Court of Appeal Decision – Tenant vs. Landlord Responsibility for Damages It is the terms of the lease that establish the rights and obligations between landlord and tenant; not any insurance obtained (paras 53-55).

April 14, 2022
3258042 Nova Scotia Limited v. Transport Canpar L.P., 2021 NSCA 84