Superior Plus: Ensuring Contracts Speak For Themselves: Court Of Appeal Of Alberta Clarifies The Limits Of Using The Factual Matrix In Contractual Interpretation

Key Takeaways In Chemtrade Electrochem Inc. v Superior Plus Corporation (" Chemtrade "), the Court of Appeal of Alberta (the " ABCA ") clarified the limits of factual matrix evidence in contractual interpretation. 1 In particular, the decision highlighted that: Factual matrix evidence cannot override or contradict the written words of an agreement to create a new contract; Certain types of negotiation evidence (including non-binding proposals and internal documentation) may only reflect subjective intent; Mutual subjective intent expressed during negotiations is not sufficient to override the words reflected in the written agreement; The best evidence is the words of the agreement itself; and Absent a plea and finding of mistake (which requires clear, cogent, and convincing evidence to counteract the evidence of the parties' intention in the written agreement), contracts will be interpreted to give effect to the words as written. Background Superior Plus Corporation (" Superior ") and Canexus Corporation (" Canexus ") entered into an agreement where Superior agreed to acquire Canexus by way of a plan of arrangement, pending regulatory approvals in the US and Canada (the " Agreement "). After the deal ultimately fell through and another competitor, Chemtrade Electrochem Inc. , acquired Canexus instead, a dispute arose over which party was entitled to the "Reverse Termination Fee" in the Agreement arising from the failed deal. The Trial Decision In order to determine who was entitled to the Reverse Termination Fee, the trial judge reviewed aspects of the negotiations between the parties, including a series of non-binding proposals, and found a "common understanding" that Superior would compensate Canexus if the transaction failed to close. On this basis, the trial judge found that Superior owed Canexus a Reverse Termination Fee of $25MM. The Court of Appeal Decision Superior appealed to the ABCA on several grounds, including that the trial judge erred in her approach to considering the factual matrix in interpreting the Agreement. Superior argued that the trial judge effectively rewrote an operative definition in the Agreement that informed which party would receive the Reverse Termination Fee. The ABCA held that although the trial judge correctly stated the principles of contractual interpretation as summarized in IFP Technologies (Canada) Inc. v EnCana Midstream and Marketing (" IFP "), 2 she did not apply them properly. Instead, she allowed the surrounding circumstances of what she described as the parties' "common understanding" to overwhelm the Agreement's plain language. The ABCA drew an important distinction between evidence of mutual intent during negotiations and evidence of mutual intent in the final agreement , finding that in this case, the parties understanding of the purpose of the Reverse Termination Fee was evidence of negotiation, not agreement: [35] The apparent basis for the trial judge's conclusion about the "common understanding" of the parties is their negotiations, including the non-binding proposals, as well as some of Superior's internal documentation. As the trial judge noted, evidence of negotiations is generally not admissible unless such evidence demonstrates the factual matrix: trial decision at para 56; IFP at para 85. Evidence of the parties' respective understanding of the purpose of the Reverse Termination Fee in this case is evidence of subjective intent more than it is evidence of the factual matrix; it reflects negotiation, not agreement. That some of the evidence could be interpreted as revealing a mutual subjective intent at one or more points of the negotiation does not mean that intent is necessarily reflected in the Agreement as ultimately written [...] [emphasis added] The ABCA held that the "common understanding" was evidence of subjective intent, which the trial judge erroneously allowed to overwhelm the words of the Agreement. Even if the "common understanding" was evidence of the surrounding circumstances, such evidence must never be allowed to overwhelm the words of the Agreement. The ABCA allowed the appeal and the trial decision was set aside. Why This Case Matters IFP remains the leading case on the interpretation of contracts in Alberta . In IFP , the ABCA applied the legal principles established by the Supreme Court of Canada in the Sattva Capital Corp. v. Creston Moly Corp. , and held, among other things, that: (i) a court must consider the factual matrix in interpreting a contract regardless of whether the contract is ambiguous; (ii) evidence of negotiations is relevant insofar as that evidence shows the factual matrix; and (iii) evidence of subjective intent is inadmissible. 3 Chemtrade demonstrates that Canadian courts still grapple with distinguishing between objective and subjective negotiation evidence and its proper use in discerning a contract's genesis, aim, or purpose. Chemtrade suggests that courts may be narrowing the exception to the parol evidence rule by which negotiation evidence is admissible, serving as an important reminder that factual matrix evidence is intended to be an objective aid, and that the words of a contract will always prevail. In light of this decision, parties involved in contractual disputes should be diligent to ensure that any negotiation evidence objectively shows the factual matrix as opposed to what the parties may have understood at the time of contracting. Further, litigants should consider leading evidence of the other categories of background facts outlined in IFP (i.e., the nature of the relationship created by the contract and/or the nature or custom of the market or industry in which the contract was executed) as evidence of the factual matrix, because this evidence is typically more objective and may be less susceptible to being challenged based on subjective intent. Case information Chemtrade Electrochem Inc. v Superior Plus Corporation , 2025 ABCA 31 (CanLII) Docket: 2301-0018AC Date of Decision: January 31, 2025 Footnotes 1 Chemtrade Electrochem Inc v Superior Plus Corporation , 2025 ABCA 31 (CanLII). 2 Decision at paras 24-25 citing Sattva Capital Corp v Creston Moly Corp , 2014 SCC 53 (" Sattva ") and IFP Technologies (Canada) Inc. v EnCana Midstream and Marketing , 2017 ABCA 157 (" IFP "). 3 IFP at paras 80-85. To view the original article click here The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Canadian Appeals Monitor McCarthy Tétrault LLP 66 Wellington Street West Suite 5300, TD Bank Tower Toronto ON M5K 1E6 CANADA Tel: 416362 1812 Fax: 416868 0673 E-mail: info@mccarthy.ca URL: www.mccarthy.ca © Mondaq Ltd, 2025 - Tel. +44 (0)20 8544 8300 - http://www.mondaq.com, source Business Briefing Key Takeaways In Chemtrade Electrochem Inc. v Superior Plus Corporation (" Chemtrade "), the Court of Appeal of Alberta (the " ABCA ") clarified the limits of factual matrix evidence in contractual interpretation. 1 In particular, the decision highlighted that: Background Superior Plus Corporation (" Superior ") and Canexus Corporation (" Canexus ") entered into an agreement where Superior agreed to acquire Canexus by way of a plan of arrangement, pending regulatory approvals in the US and Canada (the " Agreement "). After the deal ultimately fell through and another competitor, Chemtrade Electrochem Inc. , acquired Canexus instead, a dispute arose over which party was entitled to the "Reverse Termination Fee" in the Agreement arising from the failed deal. The Trial Decision In order to determine who was entitled to the Reverse Termination Fee, the trial judge reviewed aspects of the negotiations between the parties, including a series of non-binding proposals, and found a "common understanding" that Superior would compensate Canexus if the transaction failed to close. On this basis, the trial judge found that Superior owed Canexus a Reverse Termination Fee of $25MM. The Court of Appeal Decision Superior appealed to the ABCA on several grounds, including that the trial judge erred in her approach to considering the factual matrix in interpreting the Agreement. Superior argued that the trial judge effectively rewrote an operative definition in the Agreement that informed which party would receive the Reverse Termination Fee. The ABCA held that although the trial judge correctly stated the principles of contractual interpretation as summarized in IFP Technologies (Canada) Inc. v EnCana Midstream and Marketing (" IFP "), 2 she did not apply them properly. Instead, she allowed the surrounding circumstances of what she described as the parties' "common understanding" to overwhelm the Agreement's plain language. The ABCA drew an important distinction between evidence of mutual intent during negotiations and evidence of mutual intent in the final agreement , finding that in this case, the parties understanding of the purpose of the Reverse Termination Fee was evidence of negotiation, not agreement: [35] The apparent basis for the trial judge's conclusion about the "common understanding" of the parties is their negotiations, including the non-binding proposals, as well as some of Superior's internal documentation. As the trial judge noted, evidence of negotiations is generally not admissible unless such evidence demonstrates the factual matrix: trial decision at para 56; IFP at para 85. Evidence of the parties' respective understanding of the purpose of the Reverse Termination Fee in this case is evidence of subjective intent more than it is evidence of the factual matrix; it reflects negotiation, not agreement. That some of the evidence could be interpreted as revealing a mutual subjective intent at one or more points of the negotiation does not mean that intent is necessarily reflected in the Agreement as ultimately written [...] [emphasis added] The ABCA held that the "common understanding" was evidence of subje