“In interpreting a contract, a judge must determine the intent of the parties and the scope of their understanding: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, at para. 47. To do so, a judge “must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract”.
At para. 57 of Sattva, the Supreme Court of Canada considered how a judge may use evidence of the circumstances in which a contract was signed. Although a judge may consider the surrounding circumstances, “they must never be allowed to overwhelm the words of that agreement”. The goal of examining surrounding circumstances is rather “to deepen a decision-maker’s understanding of the mutual and objective intentions of the parties as expressed in the words of the contract” [emphasis added]. A court cannot use to the surrounding circumstances “to deviate from the text such that the court effectively creates a new agreement”.
The Court further limited the use of evidence of surrounding circumstances as seen at para. 58 of Sattva. Such evidence “should consist only of objective evidence of the background facts at the time of the execution of the contract (…) that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting”.”