The application of the last antecedent rule with contractual interpretation

Originally published on Law360^TM Canada (www.law360.ca), part of Lexis Nexis Canada

In the recent Ontario Court of Appeal decision, 1797472 Ontario Inc. v. Independent Electricity System Operator (“179 Ontario Inc.”), the Court reaffirmed the application of the “last antecedent rule” but emphasized the broader principle of contractual interpretation that each provision must be interpreted within the context of the contract.

The doctrine of the last antecedent dates back to the 19th century, originating from, among others, Staniland v. Hopkins (1841), 9 M. & W. 178. Essentially, this doctrine holds that when a sentence or legal provision contains multiple references or terms, any qualification or condition typically applies to the nearest term immediately preceding it. However, this rule does not apply if it is clear that the qualification refers to a different term further back in the sentence.

In 179 Ontario Inc., the Court of Appeal considered the Appellant’s challenge to the Superior Court’s interpretation of a contractual provision. The original agreement between the Appellants and the Respondents included a clause, 2.1(b), which stipulated that any changes to the “…Contract Facility or the Facility…,” as they are set out in the Application and Contract Cover Page, required the party to give notice or obtain prior written consent; otherwise, a breach of contract would occur. Relying on the last antecedent rule, the Appellants argued that the absence of a comma before the phrase “as outlined in the Application or the FIT Contract Cover Page” meant that this phrase modified “Facility” rather than “Contract Facility” (para. 18). They contended that the changes made by the Respondents were material and affected the specifications outlined in the Application and on the Contract Cover Page. Since no notice was given or consent obtained, the Appellants argued that the Respondent’s actions amounted to a breach of contract.

The Court of Appeal, however, disagreed with the appellants’ argument. It acknowledged that while the last antecedent rule is still technically applicable in contractual interpretation, it cautioned against reading a contractual provision in isolation. The Court emphasized that the provision must be interpreted in harmony with the rest of the contract, considering its broader purpose and the commercial context. The Court also noted that adhering strictly to the last antecedent rule, where a single punctuation mark was omitted, would contradict the Supreme Court of Canada’s guidance in Sattva (at para. 47). The Sattva decision calls for a “practical, common-sense approach” to contractual interpretation, one that is not dominated by technical rules of construction. Instead, the focus should be on understanding the contract as a whole, in light of the relevant factual matrix.

When ambiguity arises, the Court in 179 Ontario Inc, affirmed that judges will take into account the broader context and factual background of the contractual agreement when applying the last antecedent rule, as well as potentially other doctrines of contractual interpretation.

Lessons Learned:

• While still applicable, and as affirmed by modern courts, contractual interpretation principles are not applied in a vacuum; the broader context of the contract is an essential factor in understanding its true purpose and meaning.
• When drafting contracts, it is crucial to remain mindful of best practices and the potential impact of various interpretative principles if ambiguity were to arise.
• In the event of drafting errors or insufficient attention to detail, parties must understand that the interpretation of the contract may be left to the discretion of a third party, in this case the Court. The risk is that the court may not interpret the contract as the parties originally intended, especially if the context or purpose of the agreement is unclear.

By Jonathan Zepp, Bradley Gould and Alexander Caputo