Author ORCID Identifier
0000-0002-9103-0357
Keywords
Prior Negotiations, Contract Interpretation, Objective Theory of Contract
Document Type
Article
Abstract
This article examines the relevance and admissibility of prior negotiation evidence in contract interpretation. According to a long-established common law rule (“exclusionary rule”), the evidence of pre-contract negotiations is not admissible as an aid to contract interpretation. This study argues that the exclusionary rule is unjustified and should be abandoned. Judges should be allowed to use prior negotiation evidence to support inferences about the existence of the empirical facts constituting the relevant factual matrix, while the use of such evidence should not be allowed to support interpretive inferences about the meaning of the contract language. The distinction between empirical and interpretive inferences helps identify and explain the situations in which prior negotiation evidence assists the process of contractual interpretation.
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Citation Information
Bertolini, Daniele.
"Proving the Matrix: On the Admissibility and Use of Prior Negotiation Evidence as an Aid to Contractual Interpretation."
Osgoode Hall Law Journal
62.2 (2026)
: 441-484.
DOI: https://doi.org/10.60082/2817-5069.3906
https://digitalcommons.osgoode.yorku.ca/ohlj/vol62/iss2/3
References
1. Associate Professor of Law and Business, Ted Rogers School of Management, Toronto Metropolitan University.
2. The term “evidence of prior negotiations” refers to written or oral evidence of the pre-contractual conduct of, and communications between, the parties during their negotiations and to early drafts of the contract. The expressions “evidence of prior negotiations” and “evidence of pre-contract negotiations” will be used interchangeably.
3. Prenn v Simmonds, [1971] 3 All ER 237 [Prenn]; Chartbrook Ltd v Persimmon Homes Ltd, [2009] UKHL 38 [Chartbrook]; Resolute FP Canada Inc v Ontario (Attorney General), 2019 SCC 60 at para 100, per Justices Côté and Brown, in dissent [Resolute]. See also Geoff R Hall, Canadian Contractual Interpretation Law, 4th ed (LexisNexis, 2020) at 423-32; Angela Swan, Jakub Adamski, & Annie Y Na, Canadian Contract Law, 4th ed (LexisNexis, 2018) at 745-48; John D McCamus, The Law of Contracts, 3rd ed (Irwin Law, 2020) at 809-13; Kim Lewison, The Interpretation of Contracts, 7th ed (Sweet & Maxwell, 2020) at 117-31. For a historical analysis, see also Yihan Goh, “A Wrong Turn in History: Re-understanding the Exclusionary Rule Against Prior Negotiations in Contractual Interpretation” (2014) J Bus Law 360.
4. Prenn, supra note 3 at 240.
5. Chartbrook, supra note 3 at para 35.
6. 2014 SCC 53 at para 47 [Sattva]. For discussion of pre-Sattva case law, see Geoff R Hall, “Two Unsettled Questions in the Law of Contractual Interpretation: A Call to the Supreme Court of Canada” (2011) 50 Can Bus LJ.
7. See Swan, Adamski & Na, supra note 3 at 746.
8. Ibid at 747.
9. See generally Peter FC Howard & Samaneh Hosseini, “Evidence and Process in Canadian Courts for Contract Interpretation: Time to Grasp the Nettle on Drafts, Negotiations & Communicated Subjective Intention” (2012) Annual Rev Civ Litigation 159 at 162; Donald Nicholls, “My Kingdom for a Horse: The Meaning of Words” (2005) 121 Law Q Rev 577 at 578; Francis N Botchway & Kartina A Choong, “Not Ready for Change -The English Courts and Pre-Contractual Negotiations” (2011) 45 Intl Lawyer 625.
10. See Steven J Burton, Elements of Contract Interpretation (Oxford University Press, 2009) at 173.
11. See Alan Berg, “Thrashing Through the Undergrowth” (2006) 122 Law Q Rev 354 at 358; Richard Calnan, “Construction of Commercial Contracts: a Practitioner Perspective” in Andrew Burrows & Edwin Peel, eds, Contract Terms (Oxford University Press, 2007) 17 at 17-19; James J Spigelman, “From Text to Context: Contemporary Contractual Interpretation” (2007) 81 Austl LJ 322; Paul S Davies, “Negotiating the Boundaries of Admissibility” (2011) 70 Cambridge LJ 24; Thomas Prince, “Still Defending Orthodoxy: The New Front in the War on ‘Codelfa’” (2018) 46 Austl Bar Rev 156.
12. See generally Nicholls, supra note 9; Ewan McKendrick, “Interpretation of Contracts and the Admissibility of Pre-Contractual Negotiations” (2005) 17 Sing Ac LJ 248; Gerard McMeel, “Language and the Law Revisited: An Intellectual History of Contractual Interpretation” (2005) 34 Comm L World Rev 256 at 272-77; John Jarvis & Adam Kramer, “Refining or Reforming Construction Chartbrook: Pre-contractual Evidence and Rectification” (2009) 24 Butterworths J Intl Banking Financial L 522; David McLauchlan, “Contract Interpretation: What Is It About” (2009) 31 Sydney L Rev 5 at 8-16, DOI: [McLauchlan, “Contract Interpretation”]; Catherine Mitchell, “Contract Interpretation: Pragmatism, Principle and the Prior Negotiations Rule” (2010) 26 Austl J Contract L 134; Andrew Milner, “Contract Interpretation: Potential for Relaxing the Exclusionary Rule” (2011) 3 Intl Journal L in Built Envt 205, DOI: ; Masood Ahmed, “Reviewing the Exclusionary Principle on English Contract Law” (2012) 33 Liverpool L Rev 111, DOI: ; Yihan Goh, “The Case for Departing From the Exclusionary Rule Against Prior Negotiations in the Interpretation of Contracts in Singapore” (2013) 25 Sing Ac LJ 182.
13. See e.g. Keephills Aggregate Company Limited v Riverview Properties Inc, 2011 ABCA 101 at para 13 [Keephills]; King v Operating Engineers Training Institute of Manitoba Inc, 2011 MBCA 80 at para 70 [King]; Labrador Inuit Association v Newfoundland (Minister of Environment and Labour), 1997 CanLII 14612 at para 48 (NLCA) [Labrador].
14. See e.g. Water Street Pictures Ltd v Forefront Releasing Inc, 2006 BCCA 459 at para 27 [Water Street].
15. See e.g. Bramalea Limited v Vancouver School Board No 39, 1992 CanLII 5958 (BCCA); Langley Lo-Cost Builders Ltd v 474835 Ltd, 2000 BCCA 365 at para 29; Dumbrell v The Regional Group of Companies Inc, 2007 ONCA 59 at para 55; Nexxtep Resources Ltd v Talisman Energy Inc, 2013 ABCA 40 at para 30.
16. Supra note 9 at 205.
17. Sattva, supra note 6 at para 58.
18. See Resolute, supra note 3 at para 100; Corner Brook (City) v Bailey, 2021 SCC 29 at para 56.
19. See 2024 SCC 20 at para 107 [Earthco].
20. See 2017 ABCA 157 at para 85, leave to appeal to SCC refused, 37712 (5 April 2018) [IFP].
21. See 2020 ABCA 4 at para 32 [AUPE].
22. See generally 2017 ONCA 12, leave to appeal to SCC refused, 37482 (8 June 2017) [GoodLife].
23. See generally 2021 ONCA 592 [OFNLP].
24. See generally 2019 MBCA 61 [Filkow].
25. See Howard & Hosseini, supra note 9 at 181.
26. But see Howard & Hosseini, supra note 9.
27. Supra note 3.
28. Ibid at 241. For a comment on this decision, see GP McMeel, “Prior Negotiations and Subsequent Conduct - the Next Step Forward for Contractual Interpretation” (2003) 119 Law Q Rev 272.
29. Prenn, supra note 3 at 240.
30. Prenn, supra note 3 at 241.
31. Ibid.
32. Ibid.
33. See generally Prenn, supra note 3.
34. Ibid at 240.
35. Ibid.
36. Ibid.
37. Supra note 3.
38. Ibid at para 11.
39. Ibid at para 33.
40. Ibid.
41. Ibid.
42. Ibid.
43. Ibid.
44. Ibid at para 34 [emphasis added].
45. Ibid [emphasis added].
46. Ibid at para 35.
47. Ibid.
48. Ibid at para 40.
49. Ibid at para 41.
50. Ibid.
51. Ibid.
52. Ibid at para 14.
53. Ibid at para 15.
54. Sattva, supra note 6 at paras 49, 55.
55. Ibid at para 47.
56. Ibid at paras 58, 60.
57. Ibid at para 47. See also Geoffrey L Moore Realty Inc v The Manitoba Motor League, 2003 MBCA 71 at para 15 [Manitoba Motor]; King, supra note 13 at para 72; Ledcor Construction Ltd v Northbridge Indemnity Insurance Co, 2016 SCC 37 at paras 30, 106 [Ledcor].
58. See Sattva, supra note 6 at para 57.
59. Ibid.
60. Ibid.
61. Ibid at para 59.
62. Ibid at paras 57, 59. See also IFP, supra note 20 at para 81; Buffalo Trail Public Schools Regional Division No 29 v Alberta Teachers Association, 2014 ABCA 407 at para 11; Unifor Local 707A v SMS Equipment Inc, 2016 ABQB 162 at paras 58-59.
63. Sattva, supra note 6 at para 58.
64. Ibid, quoting Lord Hoffman in Investors Compensation Scheme Ltd v West Bromwich Building Society, [1998] 1 WLR 896 at 913 [Investors].
65. IFP, supra note 20 at para 85, citing Keephills, supra note 13 at para 13.
66. IFP, supra note 20 at para 85, citing Wesbell Networks Inc v Bell Canada, 2015 ONCA 33 at para 13.
67. IFP, supra note 20 at para 85.
68. Ibid.
69. Ibid.
70. Ibid.
71. Supra note 21.
72. Ibid at para 32, citing IFP, supra note 20 at paras 85-87.
73. AUPE, supra note 21 at para 55.
74. Ibid at para 57.
75. Supra note 22.
76. Ibid at para 41.
77. Ibid at para 40.
78. Supra note 23.
79. Ibid at para 64.
80. Ibid.
81. Ibid.
82. Supra note 24.
83. Ibid at para 30.
84. Ibid at para 41.
85. Prenn, supra note 3 at 240-41; Chartbrook, supra note 3 at para 38.
86. Chartbrook, supra note 3 at paras 34-41.
87. William Howarth, “The Meaning of Objectivity in Contract” (1984) 100 Law Q Rev 265 at 275-277; Stephen M Waddams, The Law of Contracts, 8th ed (Carswell, 2022) at 141.
88. Peter Benson, Justice in Transactions: A Theory of Contract Law (Harvard University Press, 2019) at 112, DOI: .
89. See DW McLauchlan, “Objectivity in Contract” (2005) 24 UQLJ 479 at 495 [McLauchlan, “Objectivity in Contract”]; Benson, supra note 88.
90. David McLauchlan, “The Continuing Confusion and Uncertainty over the Relevance of Actual Mutual Intention in Contract Interpretation” 37 (2021) J Contract L 25 at 25.
91. See generally McLauchlan, “Objectivity in Contract,” supra note 89 at 488; Nicholls, supra note 9 at 580.
92. Benson, supra note 88 at 112.
93. Ibid.
94. See Investors, supra note 64; Sattva, supra note 6.
95. McLauchlan, “Objectivity in Contract,” supra note 89 at 494.
96. Ibid at 484.
97. See DW McLauchlan, “Common Assumptions and Contract Interpretation” (1997) 113 Law Q Rev 237 at 243 [McLauchlan, “Common Assumptions”].
98. See especially McLauchlan, “Objectivity in Contract,” supra note 89 at 488. See also Kane Loxley, “Intention, Meaning and the Case for Reform of Contractual Interpretation in Australia” (2012) 21 Griffith L Rev 637 at 653, DOI: .
99. See Spigelman, supra note 11 at 322.
100. See McKendrick, supra note 12 at 273-74.
101. Supra note 3 at para 38 [emphasis added].
102. See McLauchlan, “Contract Interpretation,” supra note 12 at 13-16; Nicholls, supra note 9 at 582-83.
103. I am grateful to an anonymous reviewer for encouraging me to address this theoretical argument supporting the exclusionary rule.
104. Supra note 3 at 240.
105. Ibid.
106. Ibid.
107. See generally McLauchlan, “Contract Interpretation,” supra note 12 at 30-32; Nicholls, supra note 9 at 583; Lord Bingham of Cornhill, “A New Thing Under the Sun? The Interpretation of Contract and the ICS Decision” (2008) 12 Ed L Rev 374, DOI: .
108. Comparative legal analysis shows a general trend towards a progressive relaxation of the exclusionary rule in several common law jurisdictions outside of Canada in which courts adopt an objective theory of contract interpretation. The High Court of Justice in England has admitted evidence of pre-contractual communications to show that the parties negotiated on an agreed basis that certain words should bear a particular meaning. See Partenreederei MS Karen Oltmann v Scarsdale Shipping Co Ltd, [1976] 2 Lloyds Rep 708 at 712; Chartbrook, supra note 3 at para 45.
In Australia, the High Court stated that prior negotiations are admissible to the extent that they contribute “to establish objective background facts which were known to both parties and the subject matter of the contract.” See Codelfa Construction Pty Ltd v State Rail Authority of NSW, [1982] 149 CLR 337 at 352. The Court confirmed this rule in Mount Bruce Mining Pty Limited v Wright Prospecting Pty Limited, [2015] HCA 37 at para 48.
In New Zealand, the adoption of the objective contextualist approach to contractual interpretation has provided the legal basis for the abandonment of the exclusionary rule. In Bathurst Resources Ltd v L&M Coal Holdings Ltd, [2021] NZSC 85, the Supreme Court of New Zealand significantly expanded the scope of the admissibility and use of prior negotiation evidence, holding that such evidence is generally admissible if it “tends to prove anything relevant to the notional reasonable person tasked with interpreting the contract” (para 83). Also, “if evidence shows what a party intended the words to mean, and that this was communicated, it may tend to show a common mutual understanding as to the meaning of the contract….Such an understanding is relevant to the objective search for meaning” (ibid at para 76) [emphasis added]. The Court stated that this approach is “fair because it is the…most consistent with holding the parties to their true bargain” (ibid at para 77).
US law, despite differences across states, has essentially abandoned the exclusionary approach. Furthermore, the Chancery Court of Delaware has used the forthright negotiator principle, which admits evidence of pre-contractual negotiations to show the communicated subjective intentions of the parties. See e.g. United Rentals Inc v Ram Holdings Inc, 937 A (2nd) 810 (Del Ch Ct 2007) at 836 [United Rentals]. The forthright negotiation principle is also codified in Restatement of the Law, Second: Contracts 2d (American Law Institute, 1981), s 201(2).
Finally, pre-contractual negotiations are admissible in the most important international instruments applicable to commercial contracts. See United Nations Convention on Contracts for the International Sale of Goods, 11 April 1980, 1489 UNTS 3, art 8.3 (entered into force 1 January 1988); UNIDROIT Principles of International Commercial Contracts 2016 (UNIDROIT, 2016), art 4; The Commission on European Contract Law, Principles of European Contract Law: Parts I and II, eds Ole Lando & Hugh Beale (Kluwer Law International, 2000), art 5.101.
109. See e.g. Spigelman, supra note 11 at 41.
110. See especially Howard & Hosseini, supra note 9 at 162; McLauchlan, “Contract Interpretation,” supra note 12 at 37; Nicholls, supra note 9 at 578; Edward Bayley, “Prior Negotiations and Subsequent Conduct in Contract Interpretation: Principles and Practical Concerns” (2011) 28 Austl J Contract L at 21.
111. David McLauchlan, “Deleted Words, Prior Negotiations and Contract Interpretation” (2012) 2 NZ Rev 277 at 300 [emphasis in original].
112. MacLauchlan, “Contract Interpretation,” supra note 12 at 36 [emphasis added].
113. Paul S Davies, “Negotiating the Boundaries of Admissibility” (2011) 70 CLJ 24 at 26.
114. See McKendrick, supra note 12 at 266; McLauchlan, “Contract Interpretation,” supra note 12 at 10; Nagaraja Rao, “The Admission of Pre-contract Negotiations in the Construction and Interpretation of Insurance Contracts” (2009) 20 Austl Ins LJ 145 at 155; Loxley, supra note 98 at 653; Bayley, supra note 110 at 27.
115. See McKendrick, supra note 12 at 266.
116. Spigelman, supra note 11 at 46.
117. See Rao, supra note 114 at 168-69.
118. See Milner, supra note 12 at 211; Chartbrook, supra note 3 at para 35.
119. See Nicholls, supra note 9 at 587.
120. See McLauchlan, “Contract Interpretation,” supra note 12 at 41.
121. Ibid at 40-42.
122. See Chartbrook, supra note 3 at 47.
123. See Canada (Attorney General) v Fairmont Hotels Inc, 2016 SCC 56 at para 12.
124. See McLauchlan, “Common Assumptions,” supra note 97 at 240; Nicholls, supra note 9 at 586.
125. See Ryan v Moore, 2005 SCC 38 at paras 53-58.
126. See Botchway & Choong, supra note 9 at 636; Janet O’Sullivan, “Say What You Mean and Mean What You Say: Contractual Interpretation in the House of Lords” (2009) 68 Cambridge LJ 510 at 510.
127. For an example of this approach, see AUPE, supra note 21 at para 32. See also Water Street, supra note 14.
128. For an example of this approach, see GoodLife, supra note 22 at paras 39-40.
129. Sattva, supra note 6 [emphasis added].
130. Howard & Hosseini, supra note 9 at 163.
131. For an example of this approach, see IFP, supra note 20 at para 85.
132. See Sattva, supra note 6 at para 49.
133. On the inferentialist approach to legal interpretation, see Damiano Canale & Giovanni Tuzet, “On Legal Inferentialism: Toward a Pragmatics of Semantic Content in Legal Interpretation?” (2007) 20 Ratio Juris 32; Damiano Canale & Giovanni Tuzet, “What Is Legal Reasoning About: A Jurisprudential Account” in Peter Cserne & Fabizio Esposito, eds, Economics in Legal Reasoning (Palgrave-Macmillan, 2020) 9 at 9. For an inferentialist account of contractual interpretation in the Canadian context, see Daniele Bertolini, “Unmixing the Mixed Questions: A Framework for Distinguishing Between Questions of Fact and Questions of Law in Contractual Interpretation” (2019) 52 UBC L Rev 345 at 368.
134. What constitutes a relevant factual matrix is determined by the substantive law of contract. The SCC has clarified that determining the precise scope of the relevant factual matrix involves a highly contextual analysis that “will necessarily vary from case to case.” See Sattva, supra note 6 at para 58.
135. See Sattva, supra note 6 at para 47; IFP, supra note 20 at para 84; Manitoba Motor, supra note 57 at para 16; King, supra note 13 at para 68; Ledcor, supra note 57.
136. See e.g. Eco-Zone Engineering Ltd v Grand Falls-Windsor (Town), 2000 NFCA 21 at para 10; King, supra note 13 at paras 69-70; Sattva, supra note 6 at para 46; Fontaine et al v Canada (Attorney General) et al, 2014 MBCA 93 at para 43; Directcash Management Inc v Seven Oaks Inn Partnership, 2014 SKCA 106 at para 13; Shewchuk v Blackmont Capital Inc, 2016 ONCA 912 at para 39; IFP, supra note 20 at para 82.
137. See ibid at para 113.
138. See Ryan Catterwell, “The ‘Indirect’ Use of Evidence of Prior Negotiations and the Parties’ Intentions in Contract Construction: Part of the Surrounding Circumstances” (2012) 29 Austl J Contract L 183 at 190.
139. The purposive interpretation of the contract connects with the general idea that the goal of contract law is to give effect to the parties’ reasonable expectations. See e.g. Sébastien Grammond, “Reasonable Expectations and the Interpretation of Contracts Across Legal Traditions” (2009) 48 Can Bus LJ 345 at 354-56. For a criticism of this approach, see e.g. Stephen A Smith, “The Reasonable Expectations of the Parties: An Unhelpful Concept” (2009) 48 Can Bus LJ 366.
140. On the distinction between evidence of background facts and evidence showing the purpose behind the transaction, see Catterwell, supra note 138 at 190-91.
141. OFNLP, supra note 23 at para 52.
142. Ibid at para 64.
143. Ibid.
144. Ibid at para 52.
145. Ibid.
146. IFP, supra note 20 at para 125.
147. Ibid at para 85.
148. Ibid at para 126.
149. Ibid.
150. Catterwell has usefully clarified that “the purpose behind a contract can also be established (at least theoretically) from evidence of the parties’ subjective intentions.” See supra note 138 at 191. Catterwell’s insightful analysis demonstrates that the parties’ subjective intentions shown through prior negotiation evidence can be used to ascertain the purpose of the transaction in an objective way. Furthermore, in the effort to draw a clear line between what is and what is not admissible, Catterwell emphasizes the distinction between the “intention of the parties in entering a contract” (ibid at 190) and the “intention behind each of the terms of the contract” (ibid). While the use of prior negotiation evidence to prove the parties’ subjective intention behind specific contractual provisions is a prohibited “direct” use of such evidence, Catterwell (ibid at 184) argues that the use of prior negotiation evidence to prove the purpose behind the contract can be (at least in theory) an admissible “indirect” use (ibid). The Court of Appeal of England and Wales has drawn the same distinction. See Investec Bank (Channel Islands) Ltd v The Retail Group Plc, [2009] EWHC 476 (Ch) at para 76 (in which the majority recognized the relevance of prior negotiation evidence for the purpose of determining the meaning of specific clauses).
151. See Catterwell, supra note 138 at 192-95.
152. See Part III(C).
153. The proposed distinction focuses on the structure of the inferential reasoning rather than the degree of specificity of the subjective intention and therefore only partially overlaps with Catterwell’s distinction between the overall purpose of the contract and the intention behind specific clauses. See Catterwell, supra note 138.
154. That is, in the absence of evidence of common actual knowledge, the party alleging evidence of prior negotiation must show that the counterparty was put in the condition to acquire knowledge of the given problem or obstacle.
155. Goodlife, supra note 22 at para 29.
156. Ibid at para 34.
157. Supra note 19.
158. Ibid at para 20.
159. Ibid at paras 101-107.
160. See generally McLauchlan, “Common Assumptions,” supra note 97 at 243; Nicholls, supra note 9 at 583.
161. See McLauchlan, “Common Assumptions,” supra note 97 at 243; Nicholls, supra note 9 at 583; Loxley, supra note 98 at 653.
162. It is worth emphasizing that a mutual objective intent concerning the meaning of the words of the contract can be established, not only when there is evidence of pre-contractual communications indicating that the parties expressly agreed to attach a particular meaning to the words of the contract, but also when there is evidence showing that one of the parties attached a particular meaning to the words of the contract and the other party knew or had reason to know the meaning that the first party was attributing to the words at the pre-contractual stage. See McLauchlan, “Common Assumptions,” supra note 97 at 245.
163. See Partenreederei MS Karen Oltmann v Scarsdale Shipping Co Ltd (The “Karen Oltmann”), [1976] 2 Lloyds Rep 708 at 712.
164. United Rentals, supra note 108 at 836. For critical comments on this jurisprudential approach, see Catherine Valcke, “United Rentals v RAM Holdings as Transplant Failure: Strategic Ambiguity, Good Faith and the Forthright Negotiator Principle in US Contract Law” (2015) 15 Asper Rev Int’l Bus & Trade L 49.
165. See e.g. The Centre for Maritime and Industrial Safety Technology v Ineos Manufacturing Scotland Ltd, [2014] CSOH 5 at para 44 (Scot).
166. Supra note 20 at paras 127-28.
167. Supra note 3 at 241.
168. Supra note 21 at para 57.
169. Ibid.