In Wei v. Ye-Hang Canada (EH-C) Technology & Services Inc., 2025 ONSC 546, The Ontario Superior Court of Justice engaged with a relatively nuanced evidentiary principle in interpreting a contract’s terms: the circumstances surrounding a contract, and when they can be admitted as evidence to interpret a contract’s language.
The defendant offered the plaintiff an investment opportunity in 2022. The defendant claimed her company was the exclusive agent in Canada for a well-known manufacturer of drone technology, which is publicly traded in the United States. The parties entered an agreement where the plaintiff would fund the acquisition of drones by an affiliate corporation of the defendant’s company, and the plaintiff would receive 5% of the affiliate’s shares in exchange for her investment. The plaintiff advanced over $700,000 pursuant to the agreement. The defendant signed a loan receipt wherein she acknowledged the plaintiff’s investment, and an obligation to pay back the plaintiff the sum of $700,000, plus 30% interest, within 6 months of the receipt’s issuance (the “Receipt”). The defendant failed to repay this amount, and the plaintiff moved for summary judgment for the return of the amount pledged in the Receipt.
Among other defences, the defendant asserted that the agreement giving rise to the Receipt did not fully capture the arrangement between the parties. Specifically, the defendant argued that the surrounding circumstances showed the Receipt did not actually mandate a six-month repayment period, despite its wording.
Oral or written negotiations which took place prior to an agreement being made are typically inadmissible in contract disputes under the parol evidence rule. However, the defendant relied on an exception to this rule that was created in the Supreme Court of Canada’s seminal decision, Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53:
“[60] The parol evidence rule does not apply to preclude evidence of the surrounding circumstances. Such evidence is consistent with the objectives of finality and certainty because it is used as an interpretive aid for determining the meaning of the written words chosen by the parties, not to change or overrule the meaning of those words. The surrounding circumstances are facts known or facts that reasonably ought to have been known to both parties at or before the date of contracting; therefore, the concern of unreliability does not arise.” [emphasis added by motion judge]
However, the motion judge rejected the defendant’s argument on this point. In doing so, the motion judge identified an important caveat to the exception created in Sattva:
“[The defendant’s] evidence of what she characterizes as the “surrounding circumstances” is evidence that is being used to change and overrule the meaning of the words in the contract. The contract calls for repayment in six months period. There are no qualifications or conditions associated with that term. An effort to impose qualifications or conditions on it would be directly contrary to the guidance the Supreme Court of Canada provided in the passage quoted above. In effect though, what [the defendant] seeks to introduce is not evidence of surrounding circumstances but evidence of her subjective intention. Evidence of subjective intention is inadmissible for purposes of contract interpretation.” [emphasis added]
The Court ultimately granted summary judgment to the plaintiff.
Wei is a reminder that parties must be scrutinous when reviewing the wording of a contract before it is entered, to ensure it reflects their mutual intentions. Even if surrounding circumstances demonstrate the parties’ intentions were not accurately reflected in a contract’s wording, courts can only use the exception from Sattva to resolve ambiguity or uncertainty in contractual language. If one party’s understanding of a contractual term contradicts the actual language used, the surrounding circumstances of the agreement cannot be invoked by a Court as an interpretive aid to give the term a different meaning.
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